Centre Cuts Windfall Tax on Domestic Crude Sales

GS Paper III Indian Economy

Context:

The union finance ministry lowered the windfall tax on the sale of domestic crude oil to ₹6,300 a tonne (earlier ₹9,800).

The ministry also decided to reduce the special additional excise duty (SAED) on the export of diesel from ₹2 to Rs. 1 per litre.
The windfall tax on petrol and aviation turbine fuel (ATF) remained unchanged at zero.
Reason: The cut comes as crude oil prices have been easing amid persistent concerns of lower global demand and another interest-rate hike by the US Federal Reserve.

Increased tax: A windfall tax is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.
Windfall tax in India: It is levied on domestic crude oil if rates of the global benchmark rise above $75 per barrel.
- Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel.
- India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that tax supernormal profits of energy companies.
SAED: The tax is levied in the form of a Special Additional Excise Duty or SAED.
Product cracks or margins: It represents the difference between the cost of crude oil (raw material) and the value of the finished petroleum products.