The Centre imposed a windfall tax on domestic crude oil producing nations, imposed export duties on petrol, diesel, and aviation turbine fuel (ATF), and raised import duties on gold on Friday in an effort to relieve pressure on the rupee, reduce the current account deficit (CAD), and increase domestic supply of petroleum products.
Domestic producers sell crude oil at international parity prices to domestic refineries, resulting in windfall profits. Following a nearly month-long fuel shortage, the government imposed special additional excise duties of Rs 6 and Rs 13 per litre on the export of petrol and diesel, respectively. The majority of private outlets had stopped supplying fuel, forcing the government to expand universal service obligations (USO) to include the private sector as well. The USO required them to keep supplies on hand during specified working hours and at "fair prices."
Finance Minister Nirmala Sitharaman told reporters that in such extraordinary circumstances, the government had chosen a two-pronged approach to increase domestic fuel supplies while also earning additional revenue. “Our goal is for India to become a refining hub.” We are relieved that (fuel) exports are taking place. We are pleased that businesses are profiting, but (these are) phenomenal profits. At least some of it is required for our own citizens. “I also have to keep India’s consumers in mind at a time when we don’t have enough domestic supplies,” she said on Friday. The government announced plans to levy an additional cess of Rs 23,250 per tonne as a special additional excise duty on crude will have a significant impact on companies such as the state-run Oil and Natural Gas Corporation (ONGC), Oil India, Vedanta’s Cairn Oil and Gas, and Reliance Industries (RIL). Because the country produces around 29 million tonnes of crude oil per year, the decision could net the government around Rs 67,400 crore per year.
Small producers who produced less than 2 million barrels of crude in the previous fiscal year will be exempt from this cess. “This defies logic. Windfall taxation must be ad valorem and profit-linked. So this is a levy, not a windfall tax,” R S Sharma, former chairman and managing director of ONGC, explained.