Government Hikes Windfall Tax On Crude Oil To Help Mop Up Revenue Ahead of Budget

The Central Government is likely to earn Rs 3.5 lakh crore in 2023-24 from indirect taxes and duties on crude and refined petroleum products alone. In terms of the total revenues transferred to the central and state governments by way of all taxes, duties, and dividends this amount is a huge Rs 7.51 lakh crore. 

Analysts feel that the tax cuts in May and June were populist in nature and that the increase now was borne out of the compulsion of earning more revenues. More hikes are expected as the months go by and will depend upon global petroleum prices. This hike itself gives considerable fiscal headroom to Finance Minister Nirmala Sithraman as she works out the math for her budget for 2024-25.

The central government had earned a whopping Rs 2.73 lakh crore from excise duties alone in the financial year gone by. Earlier the Reserve Bank of India had given the central government significant fiscal room by giving it a huge dividend of Rs 2.11 lakh crore for the year 2023-24.

However, the Special Additional Excise Duty (SAED), has not been raised for exports of refined fuel, which has become a major source of revenue for Indian refining firms. Consequently Adani Total Gas, Oil India Ltd, Reliance, ONGC, Petronet, and IOCL both gained in trading on the BSE bourse on Tuesday. BSE Oil & Gas Index hit an intra-day high of 29,971.14, about 1,000 points lower than its historic all-time high. 

India started taxing crude oil production and exports of gasoline, diesel, and aviation fuel from July 2022, in a bid to regulate private refiners that were gaining windfall taxes from robust refining margins.

Currently, India is the third largest consumer of crude oil in the world after the US and China and imports about 85 per cent of its needs. Brent crude oil traded at a 30-day high of US$ 84.78 a barrel at 4 pm IST. 

The Indian basket of Crude Oil represents a derived basket comprising Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) of Crude oil processed in Indian refineries and the basket average price for the month of July stands at US$ 86.23. 

Crude oil prices have been rising ever since tension in the Middle East deepened. Brent prices which had stood at US $ 77.04 a barrel at the beginning of the year had peaked at US $ 91.17 on April 5.