Following a reduction of over 32 percent two weeks ago, the government of India cut the windfall tax on domestically-produced crude oil by 9 percent, effective June 1, 2024. The objective of this tax cut is to align the price of Indian-origin crude oil with its prevailing prices in international markets. Revised fortnightly, the windfall tax is collected in the form of Special Additional Excise Duty (SAED) on the super-natural gains made by the oil exploration and production companies.
According to a government notification, the SAED on the domestically-produced crude was reduced to Rs 5,200 a tonne (US$62.33), effective immediately, from Rs 5,700 fixed two weeks ago. In the previous reduction on May 16, 2024, the government had cut the windfall tax on the locally-originated crude from Rs 8,400 a tonne. The SAED on the export of diesel, petrol, and jet fuel or aviation turbine fuel (ATF) has been retained at ‘nil’.
A surprise move
The reduction in the windfall tax surprised industry stakeholders as this decision goes against the principles laid out in the draft. Normally, the windfall tax is tweaked in sync with the movement in international crude oil prices. Changes in the tax behaviour have a direct bearing on the profitability of domestic crude oil producers such as ONGC Ltd, and Oil India Ltd. Therefore, the reduction in the windfall would benefit these public sector companies.
However, it remains to be seen whether these companies pass on the tax reduction benefit to consumers. It is worth mentioning here that the government has already slashed prices of crude oil derivatives such as petrol, diesel, and aviation turbine fuel (ATF). Value-added products such as polymers and plastics have also seen a substantial decline in their prices in recent months.
Source: Polymerupdate
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