India's finance ministry is currently evaluating the potential removal of the windfall tax on local crude oil production, according to Tarun Kapoor, advisor to the Prime Minister. Kapoor explained that the tax, which was initially imposed in 2022, has become less relevant due to a significant drop in global oil prices compared to when it was first introduced.
The windfall tax was imposed to curb the profits of oil producers like Reliance and ONGC as they capitalized on high global refining margins by selling fuel internationally rather than domestically. With global oil prices now significantly lower, Kapoor indicated that the petroleum ministry has already communicated with the finance ministry regarding the issue, leaving the decision in the finance ministry's hands.
If the tax is removed, it could provide substantial relief for India's oil giants by boosting their gross refining margins. India first imposed the windfall tax on crude oil producers in July 2022, extending it to exports of gasoline, diesel, and aviation fuel.
In a recent development, the Indian government eliminated the windfall tax on crude oil in September 2024, reducing it from Rs 1,850 per tonne, following a previous reduction from Rs 2,100 per tonne in August 2024. These adjustments were made in response to the continuous decline in global crude prices, which currently hover at just over $75 per barrel, down from over $92 per barrel in April.
The government reviews the windfall tax every two weeks, and ongoing lower global oil prices may prompt further reductions or the complete removal of the tax altogether.
