Govt scraps windfall tax on oil, fuel exports

The Central Government on Monday scrapped the windfall profit tax on domestically produced crude oil, diesel, petrol, and aviation turbine fuel (ATF), following a decline in international oil prices.

A windfall tax is levied by governments against certain industries when economic conditions allow those industries to experience significantly above-average profits.

The tax was introduced in July 2022 to tax supernormal profits of oil-producing companies, which they were earning because of rising global crude prices. Now, since the average prices are coming down, the government was not earning much in revenue, so it decided to withdraw the tax.

On Monday, the Union Minister of State for Finance, Pankaj Chaudhary, tabled a notification in the Rajya Sabha, scrapping the levy on crude oil produced by firms like state-owned Oil and Natural Gas Corporation (ONGC) and exports of fuels done by companies like Reliance Industries Ltd.

The windfall profit tax has been a subject of controversy ever since it was levied. While it initially sought to balance government revenue amid fluctuating oil prices, industry players argued that it negatively impacted profitability and disincentivised production.

The Ministry of Petroleum and Natural Gas had been lobbying for its removal for some time now.

The government also removed the Road and Infrastructure Cess (RIC) on petrol and diesel exports, further alleviating the financial pressure on the oil sector.