Govt Increases Windfall Tax on Crude Oil and Diesel, Reinstates Tax on Overseas ATF Shipments
In a recent development, the Indian government has decided to enhance the windfall profit tax on domestically produced crude oil and exported diesel. This decision is accompanied by the reintroduction of the tax on aviation turbine fuel (ATF) shipments abroad. These changes are being implemented through a special additional excise duty (SAED) mechanism, aimed at regulating profits derived from these energy sources.
Tax Hike Details: The government has made the decision to increase the special additional excise duty (SAED) on domestically produced crude oil. This tax, formerly set at ₹4,250 per tonne, has been raised to ₹7,100 per tonne, as per an official notification.
Implementation Date: The new tax rates have taken effect from August 15, as indicated by the official order dated August 14.
Diesel Export Tax Increase: The SAED on exported diesel has seen a significant surge. It has risen from ₹1 per litre to ₹5.50 per litre, marking a notable change in taxation policy for this energy product.
Tax Trigger Points: These enhanced taxes on diesel and ATF exports are activated when the product cracks (or margins) exceed $20 per barrel.
Windfall Tax Initiation: India initially introduced windfall profit taxes on July 1 of the previous year, aligning with the global trend of levying taxes on energy companies’ supernormal profits.
Diesel, ATF, and Petrol Tax Criteria: The tax on exports of diesel, ATF, and petrol becomes applicable when the product cracks (margins) exceed $20 per barrel.
Oil Price Fluctuations: International crude oil prices have exhibited fluctuations. For instance, August witnessed an average price of $86.8 per barrel, up from $80.37 in the previous month and $74.93 in June.
A windfall tax is a special tax imposed by governments on companies that generate unusually high profits due to favorable market conditions or exceptional circumstances. In the context of the energy sector, such a tax aims to prevent excessive profits and ensure a fair distribution of wealth.
Purpose: Windfall taxes are introduced to capture exceptional profits generated by companies in specific industries, such as oil and gas. These profits often result from significant increases in commodity prices or sudden changes in market dynamics.
Market Fluctuations: Windfall taxes are often dynamic and responsive to market conditions. They may be adjusted regularly, based on factors like average oil prices over a certain period.
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