WINDFALL TAX ON PETROLEUM CRUDE
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Context: The Indian government has decided to reinstate the windfall tax on domestic crude oil production after a two-month break. The tax, which is levied as a Special Additional Excise Duty (SAED), will be Rs 1,600 per tonne from July 15 onwards. The SAED on other fuels such as petrol, diesel and aviation turbine fuel (ATF) will remain the same.
- The move comes as global crude oil prices have surged again due to supply cuts by major oil producers like Saudi Arabia and Russia. The Indian crude oil basket, which averaged below $75/bbl in May and June, reached $80.92/bbl on July 13.
- The government reduced the windfall tax on domestic crude oil to zero from Rs 4,100 per tonne in May this year. The tax rates are revised every fortnight based on the average oil prices in the previous two weeks.
- India introduced the windfall tax on July 1 last year, following the example of many other countries that tax the excess profits of energy companies. The tax was imposed as an export duty of Rs 6 per litre ($12 per barrel) on petrol and ATF and Rs 13 per litre ($26 per barrel) on diesel.
Q. India is one of the largest consumers of crude oil in the world, importing about 80% of its domestic demand. How does this dependence affect India's economy, environment and energy security? What are the challenges and opportunities for India to reduce its reliance on crude oil and diversify its energy sources?