Cut in Windfall Tax on petrol, diesel, ATF

On July 20, 2022, Union government reduced the windfall tax on petrol, diesel, crude oil and jet fuel, following the cut in international rates.

Highlights

  • Windfall tax on diesel and aviation turbine fuel (ATF) has been reduced by Rs 2 per litre and that on export of petrol has been reduced by Rs 6 per litre.
  • Tax on ATF has been reduced from Rs 6 per litre to Rs 4 per litre. On the other hand, tax on diesel has been reduced from Rs 13 per litre to Rs 11 per litre.
  • Tax on crude oil produced domestically has been reduced from Rs 23,250 per tonne to Rs 17,000 per tonne.
  • Ministry of Finance also imposed a cess of Rs 23,250 per tonne on domestically produced crude oil, on July 1, 2022.

Background

India imposed the windfall tax on refiners and oil producers on July 1, 2022. These refiners and oil producers had increased product exports to get profit from higher overseas margins. It also applied export levy on the products.

What is windfall tax?

Windfall tax is a one-off tax, which is imposed by a government on a company. The tax targets those who are gaining from something they were not responsible for. This tax is a higher tax rate on sudden huge profits. Domestic producers sell crude oil at international parity prices, to the domestic refiners. Thus, they make windfall gains and attracts windfall tax. It is a one-time tax more than the normal rates of tax, imposed on profits.

Why had government imposed windfall tax?

In the aftermath of Russian-Ukraine conflict, energy companies are gaining profit from sale or export of oil. There is no any improvement in their domestic processes. Thus, governments are imposing windfall tax on profits being earned by these companies. This tax will help in boosting government’s finances as well as help in funding the efforts being made by government for protecting vulnerable sections from inflation.

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