In a move aimed at curbing excess profits in the oil industry and easing the burden on consumers amid rising fuel costs, the central government announced a significant increase in windfall profit tax on crude oil. The tax, which comes in the form of Additional Excise Duty (SAED), has been raised to INR 6,800 per tonne from INR 4,900 per tonne, with effect from April 4th, 2024.
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SAED and Recent Revisions
SAED is a specific tax applied to domestic crude oil production in India. Notably, this tax does not apply to export duties on fuels like diesel, petrol, and aviation turbine fuel (ATF), which currently remain at zero. This recent hike follows a previous increase in the windfall tax, which was raised to INR 4,900 per tonne from INR 4,600 just a fortnight earlier on March 15, 2024.
Indian Government’s Policy and Its Impact
The windfall tax for crude oil producers was initially implemented in July 2022 and was later extended to gasoline, diesel and ATF exports. The policy aims to discourage private refiners from prioritizing overseas sales amid high global prices, ensuring steady supply to the domestic market. By reviewing the windfall tax rate on a fortnightly basis, the government aims to maintain stability in the sector while addressing consumer concerns.
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Global Oil Market Dynamics
In contrast, the price of oil at world markets has skyrocketed and this is due to an underlying unease about the scarcity of resources. Stumbled by the production cuts from the major producers together with numerous disruptions that occur as a result of attacks on Russian refineries and conflicts in regions like Gaza, the supply is much constrained. Crude oil contracts for June delivery closed at USD 89.51 per barrel, whereas the front-month contract for WTI crude oil was settled at USD 85.59 per barrel.
Outlook and Future Implications
As the cost of crude oil has seen to hover around the USD 90 per barrel mark, the windfall tax is going to play a very special role in regulating domestic fuel prices. An upward reset of the tax on the industry side will be the government strategy for levelling these brackets, leaving space for low-priced and sustainable energy providers.
