The Indian government has once again raised the windfall tax on petroleum crude oil, this time to Rs 3,300 (USD 39.76) per metric ton, effective from 16 February 2024. This marks the second increase in two weeks, following a previous hike from Rs 1,700 to Rs 3,200 on 3 February 2024.
Additionally, the government reintroduced a tax on diesel at Rs 1.50 per litre, reversing a recent decision to eliminate it. Aviation turbine fuel (ATF) and petrol remain exempt from the windfall levy.
This latest move comes amidst volatile global oil prices and concerns about domestic fuel affordability. While international crude prices have eased slightly in recent weeks, they remain significantly higher than pre-pandemic levels. This has led to increased profits for Indian oil producers, prompting the government to tap into those gains through the windfall tax.
The tax, introduced in July 2022, aims to capture windfall profits generated by oil companies due to exceptional circumstances. The government revises the tax rate every two weeks based on global oil prices.
Additionally, the decision to reintroduce the tax on diesel, a key fuel for transportation and agriculture, is likely to raise concerns about its impact on inflation and economic activity. While the tax rate is relatively low compared to petrol, it could still translate to higher diesel prices at the pump.
Further, the government has defended the move, arguing that it needs additional revenue to support social welfare programs and infrastructure development. However, industry experts and some economists warn that the repeated hikes could discourage investments in the oil and gas sector and ultimately harm India’s energy security.
The windfall tax issue remains contentious, with debate ongoing about its effectiveness, fairness and potential impact on the economy. As global oil prices remain uncertain, the Indian government is likely to continue adjusting the tax rate in the coming weeks, balancing its revenue needs with concerns about affordability and economic growth.
