Withdrawal of Windfall Tax on Crude Oil Production in India Likely to Benefit Major Oil Firms

New Delhi, Oct 23 (KNN) The Indian finance ministry is re-evaluating the windfall tax imposed on domestic crude oil production, as global oil prices have significantly decreased since its implementation in 2022.

This insight was shared by Tarun Kapoor, advisor to Prime Minister Narendra Modi, during a press briefing on Wednesday. Kapoor indicated that the tax has lost its relevance in the current market landscape, with Brent crude trading just over USD 75 per barrel, down from over USD 92 in April.

“The finance ministry will take a view... I believe the petroleum ministry has already communicated with them,” Kapoor stated, highlighting the ongoing discussions regarding the tax's future.

The potential removal of the windfall tax would bring significant relief to major oil producers such as Reliance Industries and Oil and Natural Gas Corporation (ONGC), potentially enhancing their gross refining margins.

The windfall tax, initially introduced in July 2022, was a response to soaring oil prices following the onset of the Russia-Ukraine conflict and subsequent Western sanctions on Russian oil.

This led to unprecedented profits for oil companies, prompting the Indian government to impose a levy aimed at capturing some of these unexpected gains.

The government had extended the windfall tax not only to crude oil production but also to the exports of gasoline, diesel, and aviation fuel, as private refiners were capitalising on favourable refining margins by prioritizing international sales over domestic supply.

In September, the Indian government announced a reduction in the windfall tax on crude oil from Rs 2,100 per tonne to Rs 1,850 per tonne, reflecting a broader strategy to align tax policies with fluctuating global oil prices.

This adjustment followed regular reviews of the windfall tax, conducted every fortnight, which are aimed at addressing market dynamics and the financial health of domestic producers.

Analysts have raised concerns regarding the windfall tax's initial lack of clarity regarding its implementation timeline and tax brackets, noting that such ambiguity can create uncertainty for industry players.

While the intention behind the tax was to generate additional government revenue from super-normal profits, its sudden imposition raised questions about the long-term viability of such measures.

As discussions continue around the windfall tax, industry stakeholders remain vigilant, eager to understand how potential changes could impact investment and operational strategies in the evolving energy landscape.

(KNN Bureau)