Government Slightly Increases Windfall Tax on Domestic Crude Oil
The Ministry of Finance has made a slight increase in the windfall tax on the sale of domestic crude oil to ₹3,300 per tonne and has reintroduced a special additional excise duty (SAED) of ₹1.5 per litre on the export of diesel.
Over the last two weeks, the special additional excise duty (SAED) on domestically produced crude oil was set at ₹3,200, while the duty on diesel exports remained at zero since January 1.
The updated duties are scheduled to take effect from Friday, as indicated in a notification by the Department of Revenue under the Finance Ministry. The additional excise duty on the export of petrol and aviation turbine fuel will continue to be at zero.
The slight hike in the windfall tax on the sale of domestically produced oil occurs amid ongoing volatility in the global oil market, especially with the Red Sea crisis. As of the latest information, the April contract of Brent on the Intercontinental Exchange was trading at $81.97 per barrel, reflecting a 0.45% increase from its previous close.
Additionally, as of February 14, the Indian crude oil basket, symbolizing the combination of sour grade (Oman and Dubai average) and sweet grade (Brent Dated) of crude oil processed in Indian refineries, was recorded at $83.08 per barrel.
The central government initially introduced windfall taxes on the sale of domestically produced crude oil starting July 1, 2022, in response to substantial profits earned by oil exploration and production companies amid multi-year high crude oil prices following Russia’s invasion of Ukraine. Additionally, the supplementary duty on the export of petrol, diesel, and jet fuels was implemented as private refiners predominantly engaged in international sales due to more favorable global prices compared to the domestic market.
The supplementary duties are reassessed every two weeks, taking into consideration the average oil prices observed in the preceding two weeks.
Moving forward, fluctuations in global crude oil prices are anticipated to persist, with the Organization of the Petroleum Exporting Countries (OPEC) projecting strong demand in the oil market for 2024 and 2025. In contrast, the International Energy Agency (IEA) recently revised down its growth forecast for 2024, indicating a slowdown in global oil demand growth.
According to the monthly report by the International Energy Agency (IEA), the global oil demand is expected to increase by 1.22 million barrels per day (bpd) in the current year. This projection is slightly lower than the estimate from the previous month. In contrast, the Organization of the Petroleum Exporting Countries (OPEC) maintained its more optimistic growth forecast, anticipating an increase of 2.25 million bpd earlier this week.
For the official notifications, namely ,Notification No. 06/2024-Central Excise, and Notification No. 07/2024-Central Excise, both issued on February 15, 2024.