Broader crude oil price trend likely to force review of windfall tax

India may decide on reviewing the newly introduced windfall tax on oil producers and refiners based on average global price trends in crude oil and not on brief fluctuations, said two people in the government.

“The petroleum ministry is keeping a close watch on volatility in the global oil market. Any move in this regard (review of the windfall tax) would be taken once there is some clarity and certainty in the price trends,” said one of the persons cited above.

He said the fortnightly review meeting, which was expected on July 15, has not been held yet because an analysis of various related factors, including whether the recent fall in the global oil prices is momentary, is awaited.

The petroleum ministry, it has been learnt, is working on the threshold that would trigger a revision on the new levy. “The ministry is working on and calculating the recent trends. They (windfall taxes) will be reviewed after a detailed analysis,” said another person in the know. The Centre has not set any formula or level to decide on revising the windfall tax.

A windfall tax is a one-off tax levied on companies deemed to have made unreasonably high profits, normally due to unusually favourable market factors.

On July 1, the Union government imposed windfall gain taxes on the export of petrol, diesel, and aviation turbine fuel (ATF), and on the domestic production of crude oil. It also mandated exporters to meet the requirements of the domestic market first.

At 8.15 pm IST, Brent crude was trading at $105.45 a barrel, up 4.24 per cent. It last week had registered its biggest weekly decline in about a month amid fears of a recession in major world economies, especially the US.

Last week, Moody's Investors Service said that windfall taxes on domestic crude oil production and fuel exports shall generate close to $12 billion (Rs 94,800 crore) for the government in the remainder of the current financial year while trimming profits of firms, such as Reliance Industries and ONGC.

Following the government's announcement, Indian oil companies will have to pay Rs 6 per litre (around $2.2 per barrel) on exports of petrol and ATF, and Rs 13 per litre (around $26.3 per barrel) on exports of diesel. At the same time, upstream producers will have to pay taxes of Rs 23,250 per tonne (around USD 38.2 per barrel) of crude oil produced in India.