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Review windfall tax on crude, says Oil ministry

20 Sep , 2022   By : Monika Singh

Review windfall tax on crude, says Oil ministry

State-run ONGC and private sector firm Cairn are likely to benefit if the finance ministry accepts a proposal by the oil ministry to exempt hydrocarbon blocks, which were bid out to companies under the production-sharing contract (PSC) and revenue-sharing contract (RSC) mechanisms, from the windfall taxes on domestic crude. 

Agencies reported that the oil ministry argued that since these contracts, which have been awarded sine 1990s, have an in-built mechanism, whereby high prices as incremental gains get transferred in the form of higher profit share for the government, the one-off tax could be waived in such cases.

As for these blocks, royalty and cess is levied and the government gets a pre-determined percentage of profits.

The government has so far signed PSC contracts for more than 300 blocks and around 100 contracts under RSC.

While ONGC has so far got 31 PSC blocks and 58 RSCs under different contractual regimes, Cairn has got five PSC blocks and 62 RSC blocks.

On July 1, the Centre imposed special additional excise duty of Rs 23,250/tonne on crude and export taxes on petrol, diesel and ATF at Rs 6/litre, Rs 13/litre and Rs 6/litre, respectively. The tax on petrol was removed subsequently.

The government’s rationale for introducing these taxes is to lay its hands on a chunk of the “windfall profits” reaped by some of the domestic firms, on the back of elevated global oil prices. The move is also aimed at addressing the crunch in the domestic fuel market, as private refiners neglected supplies to domestic retail outlets while tapping the highly remunerative export markets.

However, since then the government has reviewed the new tax for five times. In the fifth revision last week, the government slashed the windfall tax on domestic crude by 21% to Rs 10,500/tonne. It also cut the special levy on export of diesel by 26% to Rs 10/litre and trimmed the tax on jet fuel shipments by a steeper 44% to Rs 5/litre. In the fourth review on August 31, the government had raised the windfall taxes with the exports of diesel attracting a tax of Rs 13.5/litre, up from Rs 7 previously. Similarly, shipments of ATF were subjected to an impost of Rs 9/litre, up from Rs 2. The government has also raised the tax on domestically produced crude oil to Rs 13,300/tonne from Rs 13,000.

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