As a part of its efforts to rationalise tax structure in the petroleum sector and promote investments, the government has revised the windfall tax on domestic crude oil production to Rs 6,400 per tonne.

A windfall tax is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.

The government has also increased the Special Additional Excise Duty (SAED) on crude petroleum from nil to Rs 6,400 per tonne. However, the SAED on petrol and Aviation Turbine Fuel (ATF) will remain unchanged at nil. The government has decided to remove the export duty on diesel, after which, the SAED on diesel will reduce from Rs 0.50 per litre to nil.

The revision of the windfall tax on crude oil production is expected to generate additional revenue for the government. The move is expected to impact oil companies, as they will now have to pay a higher tax on the sale of crude oil in the domestic market. The removal of export duty on diesel is expected to provide relief to the manufacturing sector, which relies heavily on diesel for power generation and transportation.

The government imposed a windfall tax for the first time last year after crude oil prices soared after the Russia-Ukraine war broke out. The oil producers fetched huge profits then as a windfall gain — a sudden, unexpected spike in earnings — and the government started taxing those extra earnings.

The tax rates are reviewed every fortnight by the government reviews to calibrate the tax mop-up. As per officials, tax rate absorbs only a part of the extra profits that the companies earn in global markets during a period of high prices.