Why in the News?

With global oil prices stabilizing and domestic fuel supply improving, the government has decided to scrap the windfall gains tax, ensuring more predictable taxation for the oil industry.

What is Windfall Tax?

• A windfall tax is a levy imposed on companies experiencing unexpected profits due to external factors like market shifts or crises.
• In India, it was introduced on July 1, 2022, targeting domestic crude oil production and exports of diesel, petrol, and ATF.
  • The tax aimed to capture windfall profits and ensure adequate domestic fuel supply amid rising global prices after Russia’s invasion of Ukraine.
• The tax was imposed as Special Additional Excise Duty (SAED) on crude oil, and Additional Excise Duty (AED) or Road and Infrastructure Cess (RIC) on fuel exports.
• Initially, the tax was Rs 23,250 per tonne on crude oil, Rs 13 per litre on diesel exports, and Rs 6 per litre on petrol and ATF exports.
• The tax was regularly reviewed based on global oil price fluctuations.

Impact of Removing Windfall Tax

• Stable Tax Environment: Boosts predictability, encouraging long-term investments in oil production.
• Revenue Decline: The tax was generating less revenue, falling from Rs 25,000 crore in FY 2022-23 to Rs 6,000 crore in FY 2024-25.
• Oil Companies’ Profitability: Increased profits for producers like ONGC and Reliance Industries as they no longer pay the levy.
• Encourages Domestic Production: Promotes higher domestic oil production and exploration.
• Policy Confidence: Signals that India is confident in stable global oil prices and future supply.

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