Days after the government slashed the windfall profit tax to less than half on domestically produced crude oil and also reduced the levy on diesel, the Center is likely to lower the windfall tax again, according to CNBC-TV18 quoting sources. The government has pegged the threshold for the levy of windfall tax if crude oil is around $75 per barrel.
The windfall tax is unlikely to be nil in the near term but lower excise duty is likely, CNBC-TV18 reported quoting the sources. The tax is triggered if crude oil averages $75 per barrel for two weeks.
Diesel has cracked down close to half of $50 per barrel high, crude oil is trending lower.
The tax on crude oil produced by firms such as state-owned Oil and Natural Gas Corporation (ONGC) was on December 2 reduced to Rs 4,900 per tonne from the existing Rs 10,200 per tonne. In the fortnightly revision of windfall profit tax, the government cut the rate on export of diesel to Rs 8 per litre from Rs 10.5 per litre. The levy includes Rs 1.5 per litre as road infrastructure cess.
A windfall tax is a one-off tax imposed by a government on a company. It is levied on an unforeseen or unexpectedly large profit, especially unfairly obtained. When the crude oil prices rise sharply, it gain an advantage to domestic producers as their selling prices jump in line with the international prices.
The special additional excise duty on petrol continues to remain nil and that on aviation fuel ATF at Rs 5 a litre. When the levy was first introduced, a windfall tax on export of petrol alongside diesel and ATF (Aviation Turbine Fuel) too was levied. But the tax on petrol was scrapped in subsequent fortnightly reviews.
While windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realised and the cost.
India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of Rs 6 per litre ($12 per barrel) each were levied on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel. A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied.
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