New Delhi: The government has cut windfall gains tax on domestically produced crude oil to nil while continuing the rate at zero on the export of diesel and ATF. The government has slashed the special additional excise duty (SAED) on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) to nil from Rs 4,100 per tonne with effect from Tuesday, an official order dated May 15 said. This is the second time that the levy, which was introduced in July last year in the form of a cess to tax supernormal gains of oil producers and fuel exporters, has been cut to nil for domestically produced oil.

'Cut in windfall gains tax on domestically produced crude oil follows softening of oil prices'

The tax was cut to nil in early April but was brought back in the second half of that month with a Rs 6,400 per tonne levy. The tax on the export of diesel, which was cut to zero on April 4, continues to stay at that level. Similarly, the levy on the export of jet fuel (ATF), which was cut to nil from March 4, stays the same. The cut in windfall gains tax on domestically produced crude oil follows softening of international oil prices from over USD 80 per barrel to under USD 75.

'Crude oil prices have been on a downward trend'

Commenting on the move, Prashant Vasisht, Vice President and co-group Head of corporate ratings, ICRA Ltd, said, "Crude oil prices have been on a downward trend, erasing all the gains that were witnessed post the OPEC+ production cuts. The decline has been largely owing to the recessionary fears in large economies of the world. Moreover, the SAED on the export of petroleum products remains nil."

ICRA expects govt collections to be Rs 1,500 cr for FY24

At these rates, ICRA expects government collections to be Rs 1,500 crore for FY2024 (April 2023 to March 2024), he said. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

The government's collection from the SAED, imposed on the production of crude oil and the export of petroleum products from July 1, 2022, is estimated at around Rs 40,000 crore in FY2023. Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels like petrol, diesel, and aviation turbine fuel (ATF).

India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and ATF and Rs 13 a litre (USD 26 a barrel) on diesel.

Rs 23,250 per tonne windfall profit tax on domestic crude production was also levied

A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied. The export tax on petrol was scrapped in the very first review and that on ATF was done away with during the March 4 review.

Reliance Industries Ltd, which operates the world's largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country. The government levies a tax on windfall profits made by oil producers on any price they get above a threshold of USD 75 per barrel. The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference between the international oil price realised and the cost.

(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)