On 2 December 2024, the Department of Revenue (DoR), Ministry of Finance (MoF) has notified that the Government of India (GoI) has withdrawn the Special Additional Excise Duty (SAED), commonly known as the Windfall tax, thereby eliminating levies on Aviation Turbine Fuel (ATF), crude oil, petrol, and diesel. This move, effective immediately, aims to enhance profitability in the oil sector, foster growth in the energy industry, and boost exports.
- Alongside, the Road and Infrastructure Cess (RIC) on petrol and diesel exports has also been removed.
Key Points:
i.The decision was made after a detailed review by the Prime Minister’s Office (PMO), the DoR, MoF and the Ministry of Petroleum and Natural Gas (MoPNG).
ii.The removal of the tax is expected to benefit major industry stakeholders involved in crude oil production and refinery exports by enhancing refining margins and easing export restrictions.
About The Windfall Tax:
i.The Windfall Tax was introduced in July 2022 to address extraordinary profits earned by oil companies during a period of soaring global crude oil prices, triggered by the Russia-Ukraine conflict.
ii.The tax was intended to stabilize government revenues during the price surge, applying to both domestically produced crude oil and the export of refined fuels like petrol, diesel, and ATF.
iii.Since its implementation, the windfall tax generated significant revenue, including Rs 25,000 crore in its first year, Rs 13,000 crore in 2023-24 and Rs 6,000 crore in 2024, reflecting its declining effectiveness due to falling oil prices.
Key Fluctuations :
- The levy on crude oil production was revised every fortnight based on average global oil prices.
- For example, by August 31, 2024, the tax on crude oil stood at Rs 1,850 per tonne but was reduced to nil in the following fortnightly review.
- The export levies on petrol ended in July 2022, while the tax on diesel and ATF exports became nil in March 2023.
Reasons for Removal:
i.Declining Crude Oil Prices: Global oil prices have stabilized, reducing the excess revenue initially targeted by the tax.
ii.Industry Concerns: Companies argued that the tax affected profitability and discouraged increased production.
iii.Growth Strategy: Removing the levies aligns with the government’s aim to enhance energy sector growth and strengthen exports.
Note: Reliance Industries Limited (RIL), headquartered in Mumbai, Maharashtra which operates India’s largest export-only oil refinery in Jamnagar, Gujarat, along with Rosneft-backed Nayara Energy Limited, headquartered in Mumbai, Maharashtra are primary fuel exporters in the country.
Recent Related News:
A recent study by the State Bank of India’s (SBI) Economic Department, Ecowrap, in its report titled ‘How Tax Simplification has given a necessary fillip to ITR Filing’, reveals a cumulative 74.2% reduction in income disparity in India for individuals earning up to Rs 5 lakh annually from the Financial Year 2013-14 (FY14) to 2022-23 (FY 23).
- The share of individuals earning up to Rs 3.5 lakh annually in income disparity dropped from 31.8% in FY14 to 12.8% in FY21, marking a 19% improvement relative to their population share.
About Ministry of Finance (MoF):
Union Minister– Nirmala Sitharaman (Rajya Sabha- Karnataka)
Minister of State (MoS)- Pankaj Chaudhary (Constituency- Maharajganj, Uttar Pradesh, UP)
