Windfall tax on petroleum crude oil raised, cut to nil on diesel and ATF

India hikes windfall tax on crude oil

India has hiked the windfall tax on crude oil while reducing the tax on diesel and aviation turbine fuel, according to a government notification.

The government hiked the windfall tax on petroleum crude oil to 2,300 Indian rupees ($27.63) a ton from 1,300 rupees, it said.

A tax on diesel of 0.5 rupee per litre was eliminated, it said as was a one rupee per litre windfall tax on aviation fuel.

The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above $75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel. Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products.

Concerns over demand due to a weaker global economy and rising crude inventories in the US have led to lower crude prices in November and December. Experts believe that only geopolitical tensions in the Middle East could drive up oil prices. Lower demand and higher oil output are expected to weigh on crude oil prices in early 2024. Demand from China, which is the largest energy consumer in the world, has not recovered amid the economic slowdown in the country..

In December, the Organization of Petroleum Exporting Countries and their allies (OPEC+) voluntarily agreed to cut output by nearly 1 million barrels per day (bpd) by early 2024, taking the total cut in production above 2.2 million bpd, or about 2 percent of the world supply, to support crude prices. Even as Saudi Arabia and Russia have taken the lead in implementing supply cuts, many other countries have increased their output.

Recently, oil prices witnessed a temporary spike amid attacks by Yemen-based Houthi rebels on Israel-bound cargo ships in the Red Sea. The waterway includes the Suez Canal, an arterial east-west trading route, which accounts for 10 percent of the world's oil, grain, and consumer goods shipments. Following the attacks leading shipping firms are temporarily avoiding the Red Sea, a vital waterway for commerce between Europe and Asia.

India imposed a windfall tax on crude oil producers in July 2022 and extended the levy on exports of gasoline, diesel and aviation fuel as private refiners wanted to sell fuel overseas to make gains from robust refining margins instead of selling locally.