Reports of request for windfall tax review misleading: Oil ministry

The Ministry has not however categorically denied making a request to exempt certain oil blocks

The Ministry of Petroleum & Natural Gas has rubbished reports on Centre seeking to review the windfall tax for certain oil fields and blocks. The Hardeep Singh Puri-led Ministry on Tuesday said the reports are misleading. 

The Ministry sought exemption in the levy of Special Additional Excise Duty (SAED) in a letter to the Finance Ministry in August, some reports said. 

The exemption from the two-and-half-month old levy had been sought for the oil field or blocks which were bid out to companies under Production Sharing Contract (PSC) and Revenue Sharing Contract (RSC).

The reports said the ministry had argued that the contracts have an in-built mechanism to factor in high prices as incremental gains get transferred in form of higher profit share for the government.

However, on Tuesday, the Ministry stated that these reports are misleading. "It is clarified that the levy of SAED from 1st July, 2022 was accompanied by Government’s announcement of a mechanism of fortnightly review. Six such reviews have already taken place since the levy of SAED'" the Ministry said in a release.

"In the meanwhile, from time to time, Government has received representations and requests for clarifications in respect of modalities of levy, rates, determination of liability, etc. These necessitate consultations as well as exchange of information between different Ministries of Government including the Ministry of Finance and Ministry of Petroleum and Natural Gas. Such consultations are an on-going process and are used to inform successive reviews," it added.

The Ministry suggested, the media reports selectively referred to these communication, including one which is six weeks old without knowledge of context, background or communications made previously.

The Ministry argued that by its very nature, SAED (or windfall tax, as it is commonly referred to), represents a response to a dynamic situation. "Recalibration is therefore required and the design provides for the same based on market inputs and feedback," it said

Crude oil prices have witnessed extreme volatility in 2022. This has resulted in very high prices for end consumers at petrol pumps. Countries around the world have implemented various measures to mitigate the adverse impacts on consumers. “Windfall tax” is one of the measures which helps in dealing with the situation. 

The extent of its applicability, reference period, amount of cess or tax or duty, incidence of tax liability, mechanism for review are integral to such a tax, the Ministry said.

Last week, the government slashed windfall gains tax, lowering the duties and cess on domestic crude and export of aviation turbine fuel and diesel following a decline in international crude oil price.