Centre abolishes windfall tax on fuel exports and road & infra cess; here’s why

The Ministry of Finance has abolished the windfall tax on crude oil, aviation turbine fuel (ATF), and exports of diesel and petrol products with immediate effect. The government has also scrapped the Road and Infrastructure Cess (RIC) on petrol and diesel exports. The decision was announced through the notifications numbered 29/2024 and 30/2024 released by the Centre on Monday which were laid in the Parliament as well.

This move follows an evaluation by the government with reports suggesting that the tax, originally implemented to enhance revenue during the economic rebound from COVID-19, failed to generate significant income in recent months. Global crude prices are also currently trading between $70 and $75 per barrel. This differs from the high prices that prevailed around the time when the tax was initially introduced.

Moreover, reportedly it was observed that the tax did not motivate heightened output in the industry. Since September, taxes on major fuels including petrol and diesel had been reduced to nil because of favourable price levels. In light of this situation, the government thus considered the windfall taxation an unnecessary move for the industry as a whole.

The Special Additional Excise Duty (SAED) and Additional Excise Duty (AED) were introduced in July 2022 to retrieve excess profits from rising global crude prices from private players including refiners. The windfall tax was applicable on domestic crude oil production and exports of diesel, petrol, and jet fuel, with rates revised fortnightly based on average global oil prices. On September 18, the levy on crude oil was reduced to nil, while duties on fuel exports remained at zero.

The decision is expected to benefit major oil producers including Reliance Industries and ONGC as this will improve their refining margins. The abolition of the windfall tax could also have broader economic implications. Airlines may see reduced operational costs, potentially leading to lower airfares, while oil companies might pass on savings by lowering petrol, diesel, and ATF prices, offering relief to consumers amid inflation concerns.