The government has reduced Special Additional Excise Duty (SAED) on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) from ₹4,100 per tonne to nil with effect from Tuesday, May 16, 2023. representative image. , Photo Credit: Getty Images
The government has reduced windfall gain tax on domestically produced crude oil to zero while continuing to rate it at zero on exports of diesel and aviation turbine fuel (ATF).
The government has reduced the special additional excise duty (SAED) on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) to ₹4,100 per tonne with effect from Tuesday, May 16, 2023, an official order dated May . 15 said.
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This is the second time that the levy, which was introduced in July last year as a cess on extraordinary profits of oil producers and fuel exporters, has been reduced to zero for domestically produced oil.
The tax was reduced to zero in early April, but was brought back in the second half of that month with a levy of ₹6,400 per tonne.
No change in tax on diesel exports, ATF
The tax on export of diesel, which was made zero on April 4, remains at that level. Similarly, the levy on export of jet fuel (ATF), which was reduced to zero with effect from March 4, remains the same.
The windfall gain tax cut on domestically produced crude oil comes after a softening of international oil prices – from over US$ 80 per barrel to less than US$ 75.
Commenting on the move, Prashant Vashisht, Vice President and Co-Group Head-Corporate Ratings, ICRA Ltd. said, “Crude oil prices have been on a downward trend, erasing all the gains seen after the OPEC+ production cut. The decline. has been largely due to fears of a recession in the world’s major economies. Also, the SAED on exports of petroleum products remains zero.” At these rates, ICRA expects government collections for FY2024 (April 2023 to March 2024) to be Rs 1,500 crore.
The tax rates are reviewed every fortnight based on the average oil prices in the preceding two weeks.
The government’s collection from SAED, imposed on crude oil production and export of petroleum products from July 1, 2022, is estimated to be around Rs 40,000 crore in FY2023.
Crude oil is extracted from the land and from the bottom of the sea, refined and converted into fuels such as petrol, diesel and Aviation Turbine Fuel (ATF).
India first imposed a windfall profits tax on July 1 last year, joining a growing number of countries that tax extraordinary profits of energy companies. At that time, an export duty of Rs 6 per liter (US$12 per barrel) was imposed on petrol and ATF and Rs 13 per liter (US$26 per barrel) on diesel.
A windfall profit tax of ₹23,250 per tonne (USD 40 per barrel) was also imposed on domestic crude oil production.
The export tax on petrol was abolished in the very first review and that on ATF was abolished during the March 4 review.
Reliance Industries Ltd., which operates the world’s largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are the primary exporters of the fuel in the country.
The government taxes windfall profits made by oil producers at any price above the $75 per barrel cap.
The levy on fuel exports is based on the crack or margin that refiners earn on overseas shipments. These margins are mainly the difference between the price and cost of oil internationally.