Government Considers Removing Tax Amid Lower Oil Prices
India’s Finance Ministry is considering a proposal to remove the windfall tax on domestically produced crude oil, following a significant drop in oil prices since the tax was first introduced in 2022. A senior government official confirmed this development on Wednesday.
Finance Ministry Review Underway
Tarun Kapoor, an advisor to Prime Minister Narendra Modi, revealed that the Finance Ministry is currently reviewing the proposal. “The Finance Ministry will take a view… I think the petroleum ministry has already written to them,” Kapoor stated, as reported by Reuters.
The Indian Oil Ministry had already made a case to the Finance Ministry, asking for the removal of the windfall tax on crude oil and petroleum products. This was initially reported in August by India’s ET Now, following a decline in global oil prices.
Decline in Oil Prices Drives Proposal
The proposal to scrap the windfall tax comes as crude oil prices have dropped significantly. The Oil Ministry has presented multiple reports to the Finance Ministry, emphasizing that oil companies are no longer making excessive profits, or “windfalls,” with crude oil trading below $80 per barrel.
When the windfall tax was introduced in July 2022, oil prices were significantly higher, leading to substantial profits for oil companies. The tax was aimed at redistributing these excessive earnings and discouraging exports of crude and refined products, ensuring that more fuel remained available for domestic consumption.
Windfall Tax Introduced Amid Price Surge
India’s windfall tax was implemented to target the extra profits earned by oil producers and refiners during a period of soaring global oil prices. This followed a global trend as several other countries introduced similar taxes. The tax applied not only to domestically produced crude oil but also to exports of gasoline, diesel, and aviation turbine fuel (ATF).
The Indian government had been reviewing the tax rates every two weeks, adjusting them based on the average oil prices over the preceding fortnight.
Recent Reduction in Tax
In a significant move, the Indian government reduced the windfall tax on domestically produced crude oil to zero in September 2024, effective from the 18th of that month. This decision was based on the falling global price of Brent crude oil, which had dropped to around $75 per barrel. This is a marked decline from the average price of $94.50 per barrel in 2022, when oil prices spiked after Russia’s invasion of Ukraine, reaching a high of $123.70 per barrel.
Potential Full Removal of the Tax
With oil prices remaining low, the government is now considering scrapping the windfall tax entirely. The removal would mark the end of a policy introduced during an exceptional period of high oil prices and global economic volatility.
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