Government Revises Windfall Tax on Crude Oil Production to Boost Investments
The Indian government has announced a revision of the windfall tax on domestic crude oil production to promote investments and rationalize the tax structure in the petroleum sector. Under the new tax structure, the windfall tax on crude oil production will be set at Rs 6,400 per tonne. A windfall tax is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.
In addition to this, the Special Additional Excise Duty (SAED) on crude petroleum has been increased from nil to Rs 6,400 per tonne. However, the SAED on petrol and Aviation Turbine Fuel (ATF) will remain unchanged at nil. The government has also decided to remove the export duty on diesel, which will reduce the SAED on diesel from Rs 0.50 per liter to nil.
The revised windfall tax on crude oil production is expected to generate additional revenue for the government. This move will impact oil companies as they will now have to pay a higher tax on the sale of crude oil in the domestic market. On the other hand, the removal of export duty on diesel is expected to provide relief to the manufacturing sector, which relies heavily on diesel for power generation and transportation.
The windfall tax was introduced for the first time last year after crude oil prices soared following the Russia-Ukraine war. The tax was aimed at taxing the extra earnings of oil producers who benefited from the sudden spike in earnings. Tax rates are reviewed every fortnight by the government to calibrate the tax mop-up. Officials have stated that the tax rate absorbs only a part of the extra profits that the companies earn in global markets during a period of high prices.
Overall, the government’s decision to revise the windfall tax on crude oil production is a step towards promoting investments and rationalizing the tax structure in the petroleum sector. The removal of export duty on diesel is expected to provide relief to the manufacturing sector and boost economic growth.
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