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The Indian government announced on Monday that it has abolished the windfall tax on aviation turbine fuel (ATF), crude oil, petrol, and diesel, effective immediately. This move marks the end of a levy introduced in July 2022 and aims to provide relief to oil producers and refiners.
The decision is expected to benefit major oil players like Reliance Industries and ONGC by boosting their gross refining margins—a measure of profitability in refining crude oil.
Additionally, the government has removed the Road and Infrastructure Cess (RIC) on petrol and diesel exports, further alleviating financial pressure on the oil sector.
What is a windfall tax?
A windfall tax is an additional levy imposed on extraordinary or unexpected profits made by companies or industries. India introduced the windfall tax on domestic crude oil production in July 2022, following a sharp rise in global crude oil prices. The tax aimed to capture excess revenue generated from these unexpected gains.
Since its implementation, the tax has been a subject of controversy. While it initially sought to balance government revenue amid fluctuating oil prices, industry players argued that it negatively impacted profitability and disincentivised production.
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Why has the tax been scrapped?
According to a report by CNBC-TV18, the decision to scrap the windfall tax followed a detailed review by the Prime Minister’s Office (PMO), the Revenue Department, and the Petroleum Ministry.
The tax had become less effective in recent months as global crude oil prices declined, reducing the revenue generated. Industry dissatisfaction also played a role, with stakeholders contending that the levy discouraged higher production levels.
The removal of the tax is expected to improve the financial performance of oil companies and potentially encourage higher production. It aligns with the government’s broader strategy to foster growth in the energy sector and boost exports.
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