Finance Ministry to consider scrapping windfall tax on crude: Govt official

The imposition of windfall tax on crude oil was introduced in 2022 to address excessive profits during high prices

The finance ministry will take a decision on scrapping the windfall tax on local crude oil output, according to Tarun Kapoor, advisor to Prime Minister Narendra Modi, on Wednesday.

 

The windfall tax on crude oil was introduced in 2022 to address excessive profits during periods of high prices. Kapoor noted that since global oil prices have significantly softened, the tax may no longer be necessary.

 

“The finance ministry will take a view... I think the petroleum ministry has already written to them,” Kapoor said.

What is the windfall tax on crude, and why was it introduced?

The Centre introduced the windfall tax on domestically produced crude oil on July 1, 2022, in response to rising global prices driven by uncertainties. Finance Minister Nirmala Sitharaman had stated that the move aimed to curb “phenomenal profits” made by some oil refiners who were exporting fuel at the expense of domestic supplies. At the same time, the Centre also introduced an additional tax on refined products such as petrol, diesel, and aviation fuel.

 

On September 17, the Centre slashed the windfall tax on domestically produced crude oil to zero, following the fortnightly review. This tax, imposed as a Special Additional Excise Duty (SAED), is adjusted every two weeks based on average oil prices during that period. The tax on diesel, petrol, and jet fuel, or aviation turbine fuel (ATF), was also retained at nil, effective September 18.

Why are oil prices softening?

Expectations of a further drop in oil prices stem from a weak demand outlook in China and the United States, along with the view that tensions in West Asia may be contained.

 

According to JP Morgan, crude oil prices could dip to the low $60s by the end of 2025. Prices had initially spiked due to the Russian invasion of Ukraine, with international benchmark Brent reaching $139.13 a barrel, the highest since 2008.

 

In the past month, tensions in West Asia, particularly linked to Israel and other regional players, caused oil prices to surge to nearly $81 a barrel in early October, up from $71 a barrel in late September.

 

Estimates by analysts at Rabobank International suggest that markets are projected to be oversupplied in 2025 by about 700,000 barrels per day (bpd).