Windfall Tax on Fuel Scrapped by Finance Ministry
The Finance Ministry has announced the removal of windfall tax on aviation turbine fuel (ATF), crude products, petrol, and diesel. This decision was formalized through notifications numbered 29/2024 and 30/2024, which were presented in Parliament.
The windfall tax, officially known as Special Additional Excise Duty (SAED), was implemented in July 2022 during a period of high global crude oil prices triggered by the Russia-Ukraine conflict. The tax aimed to capture the extraordinary profits earned by oil producers and exporters, generating substantial revenue for the government during the pandemic years.
However, with crude oil prices stabilizing at $70-$75 per barrel, significantly below their peak levels, the rationale for the tax has diminished. Additionally, government revenues from the tax have declined considerably, dropping from ₹25,000 crore in FY23 to a projected ₹6,000 crore in FY25.
Therefore, the Finance Ministry has decided to scrap the windfall tax. This move is expected to benefit major oil producers like Reliance Industries and ONGC by increasing their refining margins. Shares of Reliance have already responded positively, reaching ₹1,300.05 per share shortly after the announcement.
The government has also eliminated the Road and Infrastructure Cess (RIC) on exports of petrol and diesel, marking a complete rollback of the levies on fuel exports.
The removal of the windfall tax could have significant implications for consumers and businesses. Airlines might see reduced operational costs, potentially leading to lower airfares. Similarly, oil companies could consider lowering prices for petrol, diesel, and ATF, offering some relief to consumers amid concerns over inflation.
This development highlights India's adaptive fiscal policy, designed to respond to changing market conditions while supporting domestic industries and consumer needs. The scrapping of the tax signifies a shift towards fostering economic growth in the energy sector.