Government increases windfall gains tax on crude, diesel and ATF

The government changed the windfall profits tax on Saturday, increasing the Special Additional Excise Duty (SAED) on crude oil by Rs. 3,150 per tonne and the SAED on diesel and air turbine fuel (ATF) by Rs. 2.5 per litre.

The new figures indicate that the levy on crude oil will rise from the previous Rs 1,900 per tonne to Rs 5,050 per tonne. The tax on diesel will rise from Rs. 5 per litre to Rs. 7.5 per litre.

According to the data, the tax on ATF will rise from Rs 3.5 per litre to Rs 6 per litre. In the interim, there will be no additional taxes on gasoline.

According to top government officials, the seven-month-old windfall profit tax on domestically produced crude oil and fuel exports is expected to generate about Rs 25,000 crore in the current fiscal year, which ends on March 31. The levy will continue for the time being because global oil prices are once again on the rise. "As of now, crude prices are again on the rise. So, for time being windfall tax will continue," PTI quoted CBIC chairman Vivek Johri.

Separately, Revenue Secretary Sanjay Malhotra had stated that the budget had forecast the current fiscal year's windfall tax collection at Rs 25,000 crore.

Johri had stated that it would be "impossible to anticipate how long the windfall taxes will last" because of how unstable the geopolitical environment remained.

On July 1, India introduced its first windfall profit tax, joining an increasing number of countries that tax energy companies' higher-than-average profits. At the time, export taxes on gasoline, ATF, and diesel were each charged at the rate of Rs 6 per litre (USD 12 per barrel), and Rs 13 per litre (USD 26 per barrel).

Additionally, a windfall profit tax of Rs 23,250 per tonne (USD 40 per barrel) was imposed on domestic crude production. Every two weeks, the levy is reviewed, and rates are adjusted by market oil prices.

The current windfall tax on crude oil generated by businesses like Oil and Natural Gas Corporation (ONGC) is Rs 1,900 per tonne. Crude oil extracted from the ground and beneath the seabed is refined and transformed into fuels such as gasoline, diesel, and aircraft turbine fuel (ATF).

The duty on diesel exports is Rs 5 per litre, while the levy on shipments of ATF to foreign countries is Rs 3.5 per litre. The very first review eliminated the gasoline export tax. The government imposes a tax on oil producers' unforeseen gains on any price they receive that is more than a cap of USD 75 per barrel.

The tax on petroleum exports is calculated based on the margins or cracks that refiners make from international shipments. These margins are largely the difference between the cost and the realised international oil price.

According to Johri, the two rounds of excise tax reductions on gasoline and diesel to lower retail prices have resulted in a significant decrease in revenue collection in the current fiscal year 2022–2023. "The RE is less expensive than BE because of the tariff decreases." The revised projections put the excise mop up for the current fiscal at Rs 3.20 lakh crore as opposed to the Rs 3.35 lakh crore target in the Budget last year.

The estimated revenue for 2023–24 is Rs 3.39 lakh crore.