No intent to review windfall tax on petroleum now, clarifies Govt

By its very nature, SAED or windfall tax regime represents a response to a dynamic situation and recalibration is required and the design provides for the same based on market inputs and feedback

review of windfall tax petroleum

New Delhi: The government on Tuesday clarified that there was no need for an immediate review of windfall tax on petroleum companies. In a statement, it said that media reports that states that ‘Oil Ministry seeks windfall tax review’ are misleading.

Many media houses, quoting a letter from the ministry of petroleum & natural gas, on Monday reported that the petroleum ministry has sought changes in the levy of special additional excise duty (SAED) or windfall tax.

“These reports are misleading. It is clarified that the levy of SAED from July 1 this year was accompanied by government’s announcement of a mechanism of fortnightly review.  Six such reviews have already taken place since the levy of SAED.  In the meanwhile, from time to time, government has received representations and requests for clarifications in respect of modalities of levy, rates, determination of liability, etc.  These necessitate consultations as well as exchange of information between different ministries of government including the finance and petroleum ministries,” the statement said.

Earlier report, quoting a letter from the oil ministry had stated that minister wants to review of the two-and-a-half-month old windfall profit tax on domestically-produced crude oil, saying it goes against the principle of fiscal stability provided in contracts for finding and producing oil. It stated that since the 1990s, companies had been awarded blocks or areas for exploration and production of oil and natural gas under different contractual regimes, wherein a royalty and cess is levied and the government gets a pre-determined percentage of profits.

The latest government’s communique said that selective leakage of any such communication, including one which is six weeks old, without knowledge of context, background or communications made previously or thereafter gives an incomplete picture.

“By its very nature, SAED represents a response to a dynamic situation.  Recalibration is therefore required and the design provides for the same based on market inputs and feedback. Crude oil prices have witnessed extreme volatility in 2022.  This has resulted in very high prices for end consumers at petrol pumps. Countries around the world have implemented various measures to mitigate the adverse impacts on consumers.  “Windfall tax” is one of the measures which helps in dealing with the situation. The extent of its applicability, reference period, amount of cess/ tax/ duty, incidence of tax liability, mechanism for review are integral to such a tax,” the government statement said.

India first imposed the windfall profit tax on July 1, joining a growing number of nations that tax super-normal profits of energy companies. While duties were slapped on the export of petrol, diesel and jet fuel (ATF), SAED was levied on locally-produced crude oil.

The SAED on domestic crude oil initially was ₹23,250 per tonne ($40 per barrel) and in fortnightly revisions brought down to ₹10,500 per tonne. The government levies a 10-20% royalty on the price of oil and gas as also an oil cess of 20% on production from areas given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. (OIL) on a nomination basis.

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