India is considering abolishing the windfall tax on domestic crude oil production as global crude prices continue to decline, rendering the levy less significant, according to government officials.
The windfall tax, introduced in July 2022 amid soaring oil prices because of the Russia-Ukraine conflict, was designed to capture extraordinary profits from domestic oil producers. It also included special levies on diesel, petrol and aviation turbine fuel exports.
However, with crude prices stabilising, the tax has been progressively reduced to zero since September 18 for both domestic production and fuel exports. The Indian crude basket was priced at $73.69 per barrel in September, $75.12 in October, and $73.07 in November so far.
“The petroleum ministry has written to the finance ministry seeking the tax’s removal,” said Tarun Kapoor, adviser to Prime Minister Narendra Modi, during a recent event in New Delhi. Kapoor noted that subdued oil prices had diminished the levy’s relevance, and the finance ministry is currently reviewing the proposal.
The potential scrapping of the tax could provide relief to companies such as Reliance Industries and ONGC.
Analysts believe that eliminating the fortnightly review of the tax regime would also create certainty for businesses, especially in capital-intensive sectors such as oil exploration and refining.
