Govt's FY24 windfall gains mop-up 40-50% of FY23 - fin min official
Informist, Friday, May 3, 2024
--Fin min official: Govt's FY24 windfall tax mop-up 40-50% of FY23
--Fin min official: FY23 windfall tax mop-up about 250 bln rupees
--Fin min official: Windfall tax stays as long as crude tops $75/bbl
By Priyasmita Dutta and Sagar Sen
NEW DELHI – The government's collections under the windfall gains tax in the financial year ended Mar 31 were 40-50% of 250 bln rupees it collected in 2022-23 (Apr-Mar), a top finance ministry official said. This translates to 100-125 bln rupees, a back of the envelope calculation shows.
"In 2022-23, we had collected about 250 bln rupees. Last year's collection was 40-50% of it," the official told Informist. Collections from windfall gains tax contribute to a portion of the government's total excise duty mop-up. It will detail the accounts of its full year's financials for 2023-24 on May 31.
Windfall gains tax, a special additional excise duty, was first levied on Jul 1, 2022, to tax the additional profits crude oil producers and fuel exporters were making due to high oil and fuel prices globally after Russia invaded Ukraine. When the government had first levied the cess on domestic crude, it was 23,250 rupees per tn, and translated to around $40 a bbl.
After Russia attacked Ukraine in February 2022, crude prices surged and rose to a 14-year high of $128.24 a barrel on Mar 9, 2022, and was in the range of $110-$120 per bbl for the following couple of months and then cooled off gradually. But the price of India's crude oil basket was still much lower in 2023-24 compared with 2022-23. Brent crude oil futures hovered in the range of $75-$88 per bbl for most parts of 2023-24, even hitting as low as $71-$75 per bbl for few months which led the government to briefly remove windfall gains tax on domestic crude exports entirely.
Currently, the cess imposed on domestic crude exports is 8,400 rupees per tn and translates to around $13.5 per bbl. The rate of taxation is revised on a fortnightly basis, taking into account the movement of international crude oil and fuel margins over the past couple of weeks. Brent crude oil futures have traded in a range of $86-$91 per barrel in the last two weeks.
Although windfall gains tax is a slice of the total excise duty collections, its contribution to the kitty matters both to upstream oil companies and the government. It comes as a negative to the former and a positive to the latter. As per the latest data, in the first eleven months of 2023-24, excise duty collections contracted 5.8% on year to 2.54 trln rupees as in the year-ago period, the special cess had helped the government shore up revenue under this head as the levy was higher.
Corporate entities most affected by the windfall tax are the upstream oil companies such as Oil and Natural Gas Corp Ltd, Oil India Ltd, and Vedanta Ltd.
The government has maintained that it will impose this tax when crude prices top the $75 per bbl mark. In 2023, when crude prices fell below the range for a while, the levy was slashed to nil. The official said that the finance ministry maintains this view and will continue to impose it as long as prices are over $75 per bbl.
"Yes, there is no intention of removing it. It continues as it is. As long as there are windfall gains, the taxes will continue," the official said. As per the revised estimate presented in the Interim Budget for 2024-25, the government aimed to collect 3.04 trln rupees in 2023-24 from excise duty. End
