Context:
Recently, the Government of India has reduced windfall tax to zero on domestically produced crude oil per tonne.
More on the news
- Previously, the windfall tax on domestic crude oil was reduced to Rs. 1850 per tonne from the previous Rs 2,100 per tonne on 31 August.
- India has imposed windfall tax since July 2022.
- The government had reduced windfall tax to zero for the first time on April 4, 2023.
- The tax is levied in the form of Special Additional Excise Duty (SAED) and the government revises the tax on every fortnight based on average oil prices.
- SAED is a form of tax imposed on goods for their production, licensing and sale.
- The SAED on the export of diesel, petrol and jet fuel or Air turbine fuel (ATF), has been retained at ‘nil’.
- The levy on exports of petrol, diesel, and aviation fuel was introduced to encourage private refiners to sell fuel domestically instead of exporting it to benefit from higher refining margins.
Crude oil
- It is a naturally occurring liquid petroleum product composed of hydrocarbon deposits and other organic materials formed from the remains of animals and plants that lived millions of years ago.
Windfall tax
- It is a tax levied by governments against certain industries when economic conditions allow those industries to experience significantly above-average profits.
- Oil and gas companies are common targets of windfall taxes.
Why government reduced the windfall tax?
- The move comes amid the significant decline in crude oil prices, which have fallen over 23% in the past one year.
- The global benchmark price of Brent crude has fallen below the $75-per-barrel mark, a substantial decrease from its April peak of more than $92 per barrel.
- The decision could bring down the cost of petrol and diesel for consumers.
India on crude oil
- Crude oil is one of the eight core industries of India.
- Crude Oil production (weight: 8.98 percent of total eight core industries). Its cumulative index increased by 0.6 per cent during 2023-24 over the corresponding period of the previous year.
India’s crucial statistics on energy as of 2023.
- India is 3rd largest consumer of crude oil in the world, after the United States and China.
- 4th largest oil refiner,
- 6th largest importer of petroleum products
- 7th largest exporter of petroleum products
- India imports 85% of its petroleum requirements and spent approximately $120 Billion in the Financial Year 2021-22 on the import of petroleum products.