Tuesday, 29 Apr, 2025
By: Yash Gupte
Indian oil companies like ONGC, Oil India and GAIL had registered their all-time high profits when the price of crude oil in the international market had peaked to the 14 year high of $139 per barrel due to the Russia-Ukraine conflict. Image Source: IANS
The Special Additional Excise Duty (SAED) on crude oil has been increased by the government from zero to Rs 6,400 per ton. The SAED on petrol and aviation turbine fuel (ATF), which remains at zero, will not be impacted by this rise.
The Central Government has reimposed the windfall tax on domestic crude oil production on Tuesday, April 18, 2023 and has now revised it to Rs 6,400 per ton. The government has taken this step in order to rationalise the tax structure in the petroleum sector and attract investments in the oil and petroleum industry. The new rates of the domestically produced crude oil will be coming into effect from April, 19, 2023. The Special Additional Excise Duty (SAED) on crude oil has been increased by the government from zero to Rs 6,400 per ton. The SAED on petrol and aviation turbine fuel (ATF), which remains at zero, will not be impacted by this rise. The government has also scrapped the export duty on diesel, resulting in SAED on diesel declining from Rs 0.50 to zero.
The government anticipates receiving more money from the revised windfall tax on crude oil production. Oil companies are anticipated to be impacted by the decision since they will now be subject to a higher tax on the selling of crude oil in the domestic market. The manufacturing industry, which primarily depends on diesel for transportation and power generation, is expected to benefit from the elimination of the export duty on diesel. Due to their new ability to sell diesel at a more competitive price on the international market, the move will also increase the competitiveness of Indian exporters. Overall, it is expected that the petroleum sector tax structure adjustment will benefit the Indian economy.
When economic conditions permit particular industries to generate above-average profits, governments impose a higher tax rate on those industries, which is known as a windfall tax. Therefore, these earnings are taxed individually in addition to the regular taxes that these corporations pay to the government when any industry benefits from an unexpected external circumstance and makes rapid profits.
The Ministry of Finance cut the windfall tax on locally produced oil from Rs 3,500 per ton to zero in its most recent fortnightly revision. Additionally, it had cut the tax on fuel exports in half, to Rs 50 paisa per litre.
Indian oil companies like ONGC, Oil India and GAIL had registered their all-time high profits when the price of crude oil in the international market had peaked to the 14 year high of $139 per barrel due to the Russia-Ukraine conflict. The government had then decided to impose windfall tax was due to increasing trade deficit and the depreciation of rupee increasing the value of imports. The government had imposed the windfall tax for the first time in July 2022. The latest change in the windfall tax is the 19th revision since it was first imposed on July 1, 2022 due to a surge in global crude oil prices caused by the Russia-Ukraine war.
The Indian oil companies had made huge profits by selling oil to some European countries after they decided to boycott the Russian oil and gas. This created a shortfall of the commodity in the Indian domestic market and in order to keep the supply unaffected, the government imposed the windfall tax on exports to make oil exporting more expensive. Apart from India, USA, UK, Italy, Romania and European Union have also been imposing similar tax.
Source: Ministry of Petroleum and Natural Gas
According to Hardeep Singh Puri, minister of petroleum and natural gas, profits for Indian Oil Corporation Limited grew from Rs 1,313 crore in 2019–20 to Rs 24,184 crore in 2021–20. Similar to this, the Bharat Petroleum Corporation Limited (BPCL) registered a profit of Rs 8,789 crore in 2021-2022 as opposed to Rs 2,683 crore and Rs 19,042 crore in 2020-21 and 2019-20, respectively. In just three years, Hindustan Petroleum Corporation Limited (HPCL) has seen a nearly threefold growth in earnings. The company's earnings increased to Rs 6,383 crore in 2021-22 from Rs 2,637 crore in 2019-20.
India produces less than one-fifth of its oil requirements and imports the rest. But even the meagre amount of oil produced in the nation is falling off every year. In 2014–15, India produced 37.5 million tons of its own oil, but by January 2021, that production had dropped to just 25.6 million tons. In the past, the government has attributed the decline in oil production on depleted fields and reservoir issues. However, there are a lot of additional factors causing the slide. According to a report by Care Ratings, the Covid-19 pandemic's technical disruptions, well closures, and delays in field development efforts are the reasons behind India’s declining crude oil production.
According to Pankaj Kumar, director of production at Oil and Natural Gas Corporation (ONGC), the state owned corporation is stepping up a USD 7 billion investment over the next three-four years to reverse years of decline in oil and gas production. He said, "Most of our fields are old where natural decline has set in. But we are heavily investing in technology to raise recovery as well as tap isolated reservoirs." Currently, around 24 field development, improved oil recovery (IOR) projects are in progress that will contribute in reversing the declining trend in oil and gas production.
The government has also announced fiscal incentives on new discoveries, incentives for enhanced oil and gas recovery, allowed exploration and exploitation of unconventional hydrocarbons in nomination fields, and undertaken production enhancement contracts with private players for small fields in an effort to make crude oil production appear more lucrative. Nevertheless, the nation's declining oil production pattern is still present. But in recent times, the fall in domestic crude oil production doesn’t seems to be a cause of worry as India has been importing crude oil from Russia at cheaper rates.
