India has imposed a windfall tax of 23,250 rupees ($294.3) per tonne of domestic crude output, as the government scrambles to reduce the country’s growing deficit amid sustained high oil prices .
The government said the new windfall profits tax (tax) was imposed “through a special additional excise duty” and follows the sharp rise in international crude prices.
“Domestic crude producers are making exceptional gains. In view of this, a cess (tax) of $294.3 per ton was imposed on the crude,” he noted.
State-owned oil producers such as Oil & Natural Gas Corporation (ONGC), Oil India limited and private sector player Cairn Oil & Gas (owned by the Vedanta group) are likely to feel the greatest impact from the tax, according to Upstream.
The new tax comes on top of existing taxes paid by oil producers in India and is expected to negatively impact their balance sheets in the coming quarters.
However, small producers, with annual crude production in the previous fiscal year of less than 2 million barrels will be exempt from the windfall tax, the government said.
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The new tax on oil producers is expected to result in nearly $8.3 billion in additional annual gains for the government, given India’s domestic oil production of nearly 212 million barrels, officials said. industry sources at Upstream.
The additional revenue from the new tax should provide some financial relief to the government, which faces an oil import bill that is expected to nearly double this year due to rising oil prices.
The windfall tax on domestic producers was triggered by record quarterly profits from ONGC and Oil India, as the price of crude surged to a multi-year high of nearly $139 a barrel.
ONGC recorded a record net profit of $5.1 billion in the previous fiscal year of 2021-22, while Oil India posted a profit of $492 million in the same period.
Cairn Oil & Gas, owned by Vedanta, also recorded impressive results, prompting the government to impose additional taxes on oil production.
The windfall tax targets existing production levels and will not be imposed on crude produced “in excess of last year’s production”, according to the government.
In addition to the windfall tax on producers, the government also imposed an export tax on gasoline and diesel after some refineries recorded “phenomenal profits”.
“A tax of 6 rupees per liter ($0.076) on the export of gasoline and 13 rupees per liter ($0.16) on the export of diesel will be effective from July 1,” the government said. .
The export tax on petroleum products is likely to have significant financial implications for private sector refiners such as Reliance Industries and Nayara Energy, which export oil at attractive margins.