The Indian Government on Monday announced that it has abolished the windfall tax on domestically produced crude oil, aviation turbine fuel (ATF), petrol, and diesel exports from immediate effect. The windfall tax is an additional levy imposed on extraordinary or unexpected profits made by companies or industries.

When was The Windfall Tax Introduced?

India introduced the windfall tax on domestic crude oil production in July 2022, following a sharp rise in global crude oil prices. This tax aimed to capture excess revenue generated from these unexpected gains. This latest development might benefit major oil players, including Reliance Industries and ONGC. It will help these corporations by boosting their gross refining margins, a measure of profitability in refining crude oil. Also, it aims to provide relief to oil producers and refiners.

The government of India has also eliminated the road and infrastructure cess (RIC) levied on the export of petrol and diesel from Monday. This decision will furthermore relieve the financial stress and burden on the domestic oil sector.

According to a report, the decision to scrap the windfall tax was followed by a detailed review. The Prime Minister’s Office (PMO), the Revenue Department, and the Petroleum Ministry were all involved in this decision. Initially, the levy was ₹6 per litre on exports of both petrol and aviation turbine fuel (ATF) and ₹13 a litre on diesel. The levy on domestically produced crude was ₹23,250 per tonne. The rates were reviewed every fortnight based on international benchmarks.

Days before the decision to scrap this tax, the benchmark Brent Crude price was around $110-120 a barrel. Brent Crude has been consistently below $80 a barrel since August 2024 and is currently hovering at $72 per barrel. According to the latest merchandise trade data, subdued international oil prices have depressed India’s per unit realisation of petroleum product exports. India’s exports, which plunged over two-and-a-half times to $312.50 per tonne in the first half of 2024-25 from around $792 a tonne in the first half of 2023-24 despite a robust jump in volume-wise shipments.

What Is The Need For The Abolition?

The scrapping of the windfall tax had become very essential and necessary, said a Hindustan Times report quoting a government official.

Since its implementation, the tax has been a subject of controversy. While it initially sought to balance government revenue amid fluctuating oil prices. The industry players argued that it negatively impacted profitability and dis-incentivized production. The tax had become less effective in recent months as global crude oil prices declined, reducing the revenue generated.

The removal of the tax is expected to improve the financial performance of oil companies and potentially encourage higher production. It aligns with the government’s broader strategy to foster growth in the energy sector and boost exports. The removal of the tax is expected to improve the financial performance of oil companies and potentially encourage higher production. It aligns with the government’s broader strategy to foster growth in the energy sector and boost exports.

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