The Centre revised the windfall tax for domestically produced crude oil to Rs6400, while also scrapping the export duty on diesel, it had reduced the diesel export duty to NIL from 50paise per litre. In the previous revision, the export duty on diesel was halved from Rs1 per litre to 50paise per litre. It will come into effect from April 19, 2024, Wednesday.
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What is Windfall Tax?
The windfall tax is the tax charged by the government for super normal profit or unanticipated increase in profit due to sudden increase in price of the product in the global market. In most cases Windfall tax is charged on hike in the price of crude oil or petrol due to which producers earn more than the expected profit. Tax charged depends on the market price of that particular product.
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Why it is Imposed?
Windfall tax is levied as a special additional excise duty with a motive of absorbing the abnormal profit or super profit earned by local crude oil producers due to increase in global crude product prices and it is revised every fortnight by the central government. The rate of the levies is changed according to change in price of crude and the refining spread. The government of India charged windfall tax last year on crude oil and levies on export of gasoline, diesel and aviation fuel after private refiners build up trade in overseas market at higher price instead of selling at lower market rates in the country.
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Change that will take place
The centre re-imposed the windfall tax on local crude oil on Tuesday, while also removing export duty on diesel and the revised rate come into effect from April 19, 2024 (Wednesday). The tax is reviewed every fortnight. In the previous revision export duty on diesel was reduced from Rs1 to 50 Paise and this time making it NIL.
The revised windfall tax on local crude oil is expected to produce additional revenue for the government. The step will also impact oil companies most probably, as they will have to pay higher tax on the sale of crude oil in the domestic market. The reduction of export duty on diesel to Nil will most probably provide some amount of relief to the manufacturing sector, which is mostly dependent on diesel for power generation and transportation.
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Windfall Tax during Russian Ukraine War in 2022
The government imposed windfall tax for the first time last year on July 2022, during Russia-Ukraine war. As the crude oil price soared up after the war broke out. The producers of oil fetched huge profits and sudden spike in their earnings and government started taxing on that extra profit. As per officials, Government can charge tax only on the extra profit made by the producers due to rise in the price in global markets.
