In a recent announcement on December 18, the government has significantly reduced the windfall profit tax on domestically produced crude oil and diesel exports. This move involves a noteworthy cut in the Special Additional Excise Duty (SAED) imposed on these commodities.
Introduced in July 2022, windfall tax was implemented in response to the rising price of crude oil. It is imposed when an industry unexpectedly generates substantial profits due to an unprecedented event. For domestically produced crude oil, the tax is triggered when global benchmark rates exceed $75 per barrel.
For diesel, ATF, and petrol exports, the tax applies when product cracks or margins surpass $20 per barrel, representing the difference between the cost of crude oil and the value of finished petroleum products.
Effective from December 19, the SAED on domestically produced crude oil has been reduced from ₹5,000 per tonne to ₹1,300 per tonne. Concurrently, the SAED on diesel exports has seen a reduction from ₹1 per liter to ₹0.50 per liter.
While these reductions are in effect, the government has introduced a tax on aviation turbine fuel (ATF) exports, set at ₹1 per liter from December 19 onwards.
Notably, the SAED on petrol remains unaffected and continues at a rate of zero despite these changes.
Recent Windfall Tax Revisions
The windfall tax undergoes fortnightly revisions, contingent upon fluctuations in international crude and product prices. On December 1, the government previously decreased the windfall tax on crude petroleum from ₹6,300/tonne to ₹5,000/tonne.
During the review on November 16, the government reduced the windfall tax on crude petroleum by ₹3,500, bringing it down from ₹9,800 per tonne to ₹6,300 per tonne, aligning with the global downward trend in oil prices.
Earlier, on November 1, the government raised the tax on crude oil from ₹9,050 per tonne to ₹9,800 per tonne. Subsequently, the duty on diesel exports was halved to ₹2/liter, and the levy on jet fuel was eliminated, reducing it from Re 1/liter to nil.
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