Govt reviews windfall gains tax, cuts cess on crude; hikes export duty on jet fuel, diesel

Central government in its fortnightly review of windfall gains tax on August 18 cut the cess on crude oil to Rs 13,000/tonne from Rs 17,750 per tonne earlier. The export duty on aviation turbine fuel (ATF) has been hiked to Rs 2 per litre from nil, while the export duty on diesel has been raised to Rs 7 per litre from Rs 5 per litre. The changes come into force on August 19, 2022, according to a circular issued by the Centre. This is the third revision in the windfall gains tax imposed on July 1. The move may come as a relief for producers and refiners like ONGC, Reliance and Vedanta.

The windfall gains cess is reviewed fortnightly taking into consideration the global crude prices. The Indian government first imposed the windfall taxes in July, joining a select league of nations globally that tax super-normal windfall gains accruing to oil companies from soaring energy prices. At the time of imposing the windfall tax, the government had stated that the main objective behind the levy was to shore up domestic supplies as refiners were preferring to export than to meet the local requirements. However, international oil prices have cooled off since then, eroding profit margins of oil producers and refiners both. 

Earlier this month, the government had scrapped the windfall gains tax on ATF exports. In the latest review, the tax on domestically produced crude oil has been cut to Rs 13,000 per tonne from Rs 17,750. The Centre had also eliminated a levy on gasoline exports and cut windfall taxes on diesel and aviation fuel shipments by Rs 2 per litre on August 2. With the latest revision, the government reintroduced the levy on ATF. Per the notification, the special additional excise duty on export of diesel has also been increased from to Rs 6 per litre, and including a cess it would be Rs 7 per litre. Petrol export would continue without the levy of the windfall tax.

For the uninitiated, the Union Ministry of Finance on 1 July had slapped an export tax on petrol and diesel after some refineries made super-normal profits  from exports at the cost of domestic supplies, and imposed a Rs 66,000 crore windfall tax on crude oil produced locally. The Centre imposed an export duty of Rs 6 per litre on petrol and ATF and a Rs 13 per litre duty on export of diesel. A windfall tax of Rs 23,250 per tonne was imposed initially on the sale of domestic crude.

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These windfall gains taxes were first reviewed on 20 July, wherein the Rs 6 per litre duty on petrol exports was scrapped and the tax on the export of diesel and jet fuel (ATF) was reduced Rs 11 and Rs 4 respectively. The tax on domestically produced crude was also reduced to Rs 17,000 per tonne. Thereafter, on August 2, the export tax on diesel was cut to Rs 5 a litre and that on ATF scrapped, following a drop in margins. However, the levy on domestically produced crude oil was raised to Rs 17,750 per tonne in line with a marginal increase in international crude prices.