India considers scrapping windfall tax on crude oil

India’s finance ministry will consider a proposal to scrap the windfall tax on domestic crude oil production as prices are much lower compared to when the levy was introduced in 2022, a senior government official said on Wednesday.

“The finance ministry will take a view… I think the petroleum ministry has already written to them,” Tarun Kapoor, adviser to Prime Minister Narendra Modi, said today, as reported by Reuters.

India’s oil ministry has asked the country’s finance ministry to consider scrapping the incidental tax on crude oil and petroleum products due to falling international oil prices, Indian broadcaster ET Now exclusively reported in August.

The Oil Department has sent a series of presentations to the Treasury Department saying oil companies are not making unexpected — or excessive — profits when crude oil prices are below $80 a barrel.

India first introduced the windfall tax in July 2022, joining other governments in taxing energy companies’ excessive profits. India imposed the windfall tax on the country’s oil producers and oil refiners, which exported more due to high international prices of crude oil and refined products. The new taxes were intended to serve as an incentive to keep more products domestically and export less.

Since then, India has been reviewing crude oil and fuel tax rates every two weeks, based on average oil prices over the last two weeks.

Apart from domestically produced petroleum, the government also imposes a windfall tax on petrol, diesel and aviation turbine fuel (ATF).

In September, the Indian government reduced the incidental tax on domestically produced crude oil to zero, effective September 18.

Now the government could scrap the measure to tax domestically produced crude oil entirely, as Brent oil prices are now around $75 a barrel, well below the average price of $94.50 a barrel in 2022 , when oil prices hit a multi-year high of $123.70 per barrel after the Russian invasion of Ukraine.

By Tsvetana Paraskova for Oilprice.com

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