The Indian government has raised the windfall profit tax on diesel exports to Re 1 per litre while simultaneously cutting the levy on domestically produced crude oil by a fifth, according to an official order issued on March 20. The new tax rates came into effect on March 21 and will be reviewed every fortnight based on average oil prices in the previous two weeks.

Crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) will see the levy reduced to Rs 3,500 per tonne from Rs 4,400 per tonne. Meanwhile, the tax on export of diesel has been raised to Re 1 per litre from Rs 0.50, although the levy on overseas shipments of aviation turbine fuel (ATF) will remain at nil.

India first imposed windfall profit taxes on July 1, 2022, joining a growing number of nations that tax the super-normal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and ATF, and Rs 13 a litre (USD 26 a barrel) on diesel. A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied.

The export tax on petrol was scrapped in the very first review, and that on ATF was eliminated at the last review on March 4. Reliance Industries Ltd, which operates the world’s largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.

The government levies tax on windfall profits made by oil producers on any price they get above a threshold of USD 75 per barrel. The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments, primarily the difference between the international oil price realised and the cost.

The changes in tax rates aim to provide some relief to domestic consumers and are expected to discourage exports, which will likely lead to increased supplies for local consumption. The decision to cut the tax on domestically produced crude oil is intended to encourage companies like ONGC to invest more in exploration and production activities, which will further help in reducing the country’s dependence on oil imports.

The government has been taking various measures to reduce the country’s dependence on imported oil, including encouraging the use of alternative sources of energy such as electric vehicles, solar power, and wind power. The move to raise the windfall profit tax on diesel exports while simultaneously cutting the levy on domestically produced crude oil is another step in this direction.