Iran-Israel conflict could delay withdrawal of windfall tax, review likely in July: Govt official – Moneycontrol

With the volatility in oil prices continuing and the risk of a flare-up back, the windfall tax on export of fuel will continue, with a review to be done at the time of the Union Budget after elections, a top government official said.

A windfall tax refers to a higher tax rate on profits from a sudden windfall gain due to unusually favourable market conditions.

“The tax could have been done away with, but with the latest flare- up in oil prices, once again the risk that prices may go up has surfaced. At the moment, the windfall tax will not go away,” the official told Moneycontrol on condition of anonymity.

On being asked if the high government revenue collection seen in both direct and indirect tax provided scope to do away with the windfall tax, he said: “Yes, that could have been done.”

The Goods and Services Tax (GST) revenue in April crossed the Rs 2 lakh crore mark and the net direct tax collection in FY24 surpassed the revised estimates of Union Budget at Rs 19.58 lakh crore, with the boost in economic activity. The windfall tax was implemented in 2022 amidst high oil prices, post COVID, to raise spending on food and fertilisers.

Oil prices had risen above $92 per barrel in April due to the Iran-Israel conflict. Prices have currently come down to $83 per barrel. The average price last year stood at $82.49 per barrel.

Though oil prices are now down, the current uncertainties in the Middle East are an indication that any disturbance can fuel up prices again, he said.

“The question on oil prices has come back. It’s an indication that in case something goes wrong, oil prices can shoot up again. What if it goes to $120 per barrel?” he said.

The Finance Ministry will review the windfall tax ahead of the Union Budget with respect to oil prices and then take a decision, he added.

The windfall tax, which came into effect in 2022, will complete two years on July 1 this year.

“With the current oil prices at $83 per barrel, it’s not a big worry for the Finance Ministry. Oil prices went up but they have come back down a little bit,” he said.

The government is hoping that oil prices do not lead to something very severe and should be stable, going ahead, he said.

In July 2022, the government introduced a windfall tax that targeted crude oil producers. Later, this was expanded to include gasoline, diesel, and aviation turbine fuel (ATF) exports. The primary objective of this policy is to discourage private refiners from selling these fuels abroad at higher global prices and instead prioritise domestic market supply.

The government had cut windfall tax on domestically produced crude oil to Rs 8,400 per tonne from Rs 9,600 per tonne on April 30, 2024.

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