Government raises windfall tax on fuel and crude oil

16 Feb 2024 , 12:54 PM

With effect from February 16, the government has modified its windfall gains tax on crude oil. The Special Additional Excise Duty (SAED) on crude petroleum will rise to ₹3,300/tonne from ₹3,200/tonne previously, in accordance with the modifications. The tax on diesel will also increase from nil/litre to ₹1.50/litre. Additionally, SAED for gasoline and aviation turbine fuel (ATF) will remain zero.

The government increased the windfall tax on domestically produced crude oil earlier this month from ₹1,700 per tonne to ₹3,200 per tonne. 

Special Additional Excise Duty (SAED) is the tax imposed.

Oil producers pay taxes on their windfall earnings if the price per barrel exceeds a certain threshold of $75. The tax on fuel exports is determined by the margins or cracks that refiners receive on shipments to other countries. The primary difference between these margins and the cost is the realized worldwide oil price. 

On July 1, 2022, India introduced windfall profit taxes, joining a number of other countries that put taxes on energy companies’ supernormal profits. During that period, export taxes were assessed on gasoline and ATF at ₹6 per litre ($12 per barrel) and on diesel at ₹13 per litre ($26 per barrel).

Every two weeks, the average oil price over the preceding two weeks is used to reevaluate the tax rates. 

Fuels like gasoline, diesel, and ATF are created from refined crude oil that is pumped out of the earth and from beneath the seafloor.

Domestic crude oil is subject to a windfall tax if the price of the global benchmark surpasses $75 per barrel. The charge is applied to the export of gasoline, diesel, and ATF if the product cracks or margins over $20 per barrel.

The distinction between completed petroleum products and crude oil, or raw material, is known as product cracks or margins.

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