Explained: Why India has cut windfall tax on diesel, aviation fuel exports

Source: The post is based on the article “Explained: Why India has cut windfall tax on diesel, aviation fuel exports” published in Indian Express on 20th July 2022.

What is the News?

The government of India has slashed windfall tax on domestically produced crude, diesel and aviation turbine fuel, withdrew the levy on petrol and exempted exports of fuels from the special economic zone(SEZ) from it.

What is the Windfall Tax?

A windfall tax is a higher tax rate on sudden big profits levied on a particular company or industry.

What was the windfall tax imposed by the Government?
Windfall tax
Source: Economic Times

On July 1, the central government imposed export duties on petrol, ATF and diesel and imposed a windfall tax on domestic crude production (Rs 23,250 per tonne or USD 40 per bbl). 

Why did the Government impose Windfall Tax?

Global crude prices had risen, and domestic crude producers were making windfall gains. Private oil marketing companies were exporting petrol and diesel to foreign countries like Australia for better realization.

This led to a shortage of fuel at retail outlets as oil marketing companies were not willing to sell the commodity at a loss since prices had not increased despite rising crude and depreciating rupee.

Why is the Windfall Tax now withdrawn?

Over the last fortnight, the benchmark contract of crude oil on the Intercontinental Exchange has fallen by over 12% on fears of a recession in the US and overall global recession, prompting the government to undertake a review of the duties imposed.

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