India more than halves windfall tax on diesel

The Narendra Modi government on Tuesday revised the windfall tax — a higher tax rate on sudden big profits which is levied on a particular company or industry — on crude oil, Aviation Turbine Fuel (ATF) and diesel exports.

The windfall tax on crude oil has been revised from Rs 17,000 per tonne to Rs 17,750 per tonne. The export duty on diesel has been cut from Rs 11 per litre to Rs 5 per litre. Interestingly, the export duty on ATF has been entirely scrapped. Similarly, export duty on petrol continues to be nil.

A windfall tax is a one-off tax imposed by a government on a company. When a company benefits from something that they are not responsible for, the financial gain that ensues is called windfall profits.

Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.

India imposed windfall taxes on July 1, joining a growing number of nations that taxes super normal profits of energy companies. But international oil prices have cooled since then, eroding profit margins at both oil producers and refiners.

At the time of imposing the windfall tax, the government had stated that the objective behind the move was to shore up domestic supplies as refiners were preferring to export than to meet the local requirements.