The Indian government has officially withdrawn the windfall tax on crude oil, aviation turbine fuel (ATF), and exports of petrol and diesel, signaling a complete rollback of the Special Additional Excise Duty (SAED) that was introduced in 2022 during a period of unprecedented global oil price hikes. The Finance Ministry formally presented this decision in Parliament, backed by notifications numbered 29/2024 and 30/2024. This marks a significant shift in India’s energy policy, especially after a period of volatile crude oil prices driven by global supply disruptions, including the ongoing Russia-Ukraine conflict.
The windfall tax, which was first imposed in July 2022, was designed to capitalize on the extraordinary profits earned by domestic oil producers and exporters amid surging international crude prices. The sharp rise in oil prices, which spiked due to the geopolitical instability caused by the war in Ukraine, led to substantial profits for Indian refiners, including major players like Reliance Industries, ONGC, and other oil-exporting firms. In response, the government levied a windfall tax on crude oil exports, and also imposed duties on exports of petrol, diesel, and ATF, in an effort to benefit from these extraordinary earnings.
The government also scrapped the Road and Infrastructure Cess (RIC) on petrol and diesel exports, which had further increased the financial burden on fuel exporters. This complete removal of export levies on fuel products reflects a broader strategy to support sectors dependent on these commodities, while also responding to the stabilizing global crude oil prices, which are now hovering around $70-$75 per barrel—well below the elevated levels that initially justified the tax.
The rollback of the windfall tax is attributed to multiple factors. First, the stabilization of global oil prices has reduced the need for such a tax, as the economic conditions that led to its imposition have changed. The reduction in government revenue from this tax has been stark, dropping sharply from ₹25,000 crore in FY23 to just ₹6,000 crore in FY25, signaling that the fiscal benefits were not as significant as initially anticipated.
This move is expected to have broad ramifications across several industries. For airlines, the elimination of the windfall tax on ATF is particularly significant. It could lead to reduced operating costs, providing airlines with the opportunity to pass on these savings to consumers in the form of lower airfares. The aviation sector has long been burdened by the high cost of jet fuel, and this tax rollback is expected to give airlines some much-needed financial relief, especially as travel demand continues to recover in the post-pandemic era.
Major oil producers and refiners such as Reliance Industries, ONGC, and other public and private sector players are poised to benefit from this policy change. With the windfall tax gone, these companies are expected to see improved refining margins, which could boost profitability. The news of the tax rollback had an immediate positive impact on the stock market, with shares of Reliance Industries rising to ₹1,300.05 per share, reflecting optimism about the company’s future prospects without the burden of the windfall tax.
The windfall tax was last revised on August 31, when it was set at ₹1,850 per tonne for crude petroleum exports. However, the export duties on diesel, petrol, and ATF had already been reduced to zero by September 18, signaling the government’s intent to phase out the tax. This gradual reduction in the windfall tax mirrored the global trend of falling oil prices, which has diminished the rationale for continuing the levy.
Experts suggest that this policy shift is in response to not only falling global oil prices but also the recognition that the windfall tax was not as effective as anticipated in boosting government revenues. Furthermore, the government appears to be signaling a shift in focus towards supporting domestic industries, such as the airline and refining sectors, which could play a critical role in India’s economic recovery and growth in the post-pandemic world.
In conclusion, the government’s decision to withdraw the windfall tax marks the end of a significant chapter in India’s energy policy. While the initial intent of the tax was to capture extraordinary profits from oil producers during a period of high global crude prices, its removal reflects a broader shift towards stabilizing domestic industries and promoting long-term economic growth. With the rollback, sectors like aviation and refining are expected to benefit, potentially boosting employment and contributing to overall economic recovery.
