Lower crude prices to dent government’s windfall tax gains

The government now expects to garner roughly Rs 30,000-35,000 crore by March-end from the windfall tax.

One view also is that on a net-net basis, actual revenue gain could be further limited to Rs 20,000-25,000 crore. This is because the government is likely to lose out on corporate tax collections from oil companies, the largest contributor to corporate taxes.

Even if the government is able to net that Rs 35,000 crore, there are already claims against the mop-up.

Government owned oil-marketing companies (OMCs) have already been compensated by Rs 22,000 crore against their LPG losses. Further to that, the government is currently discussing compensating OMCs for their petrol and diesel losses too.

Estimated losses arising out of the price freeze on petrol diesel are pegged at Rs 45,000 crore.

However, one view within the government is that they do not have the fiscal space to compensate OMCs yet again, but discussions are not closed yet. Officials also say it would be difficult to have a clear cut revenue target on windfall tax due to price swings on crude oil and cracks.

At best, windfall tax collections can be subsumed into the overall excise kitty without a separate budget head.

Also, the government had lost over Rs 1 lakh crore in excise revenues when it slashed duties on petrol and diesel in May last year. To an extent, the windfall tax could be used to plug that gap.

It seems likely that the government will continue with the windfall tax mechanism, even if levies become nil due to a fall in crude oil and commodity cracks.