India cuts windfall tax on petroleum crude to ₹5,700 per metric ton from today

India has cut the windfall tax on petroleum crude to ₹5,700 per metric ton from ₹8,400 with effect from May 16, Reuters reported. 

As per a notification from the government on May 15, there is no change in windfall tax for diesel and aviation turbine fuel (ATF), it added.

Windfall Tax Movements

The tax is revised every two weeks, and was similarly cut on May 1, only for petroleum crude to ₹8,400 a metric ton from ₹9,600.

In April 2024, the windfall tax on petroleum crude was increased from ₹4,900 to ₹6,800 per metric ton on April4, and further from ₹6,800 to ₹9,600 per metric ton from April 16. 

And in March 2024, the tax was at ₹4,600/mt in the first week of March, and raised mid-month to ₹4,900/mt. 

The increase in taxation manifests through the imposition of a Special Additional Excise Duty (SAED) on domestic crude oil producers.

Why Windfall Tax?

India started the tax on crude oil producers and on exports of gasoline, diesel and aviation fuel in July 2022 to regulate private refiners who wanted to sell fuel overseas instead of locally in a bid to gain from robust refining margins.

In July 2022, the Indian government introduced a windfall tax targeting crude oil producers. Subsequently, this tax was expanded to cover exports of gasoline, diesel, and ATF. 

This policy aims to regulate private refiners and deter them from capitalising on elevated global prices by selling these fuels abroad, instead prioritizing domestic market supply. 

The Finance Ministry adjusts the windfall tax rate every two weeks.

Global Oil Prices

Meanwhile, oil prices continued to rise on May 16, building on gains from the previous session, as per a Reuters report. This increase was driven by signs of stronger demand in the United States and data showing slower-than-expected inflation, which supports the case for an interest rate cut that could further boost demand.

Brent futures increased by 42 cents, or 0.5 per cent to $83.17 a barrel; and US West Texas Intermediate crude (WTI) climbed 43 cents, or 0.6 per cent to $79.06 at 0032 GMT.

(With inputs from Reuters)