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    India to withdraw windfall tax if oil prices fall $40 a barrel

    Synopsis

    The tax on firms that have increased product exports to gain from higher overseas margins took effect on July 1, as the government moves to boost domestic supply and revenue.

    oilAFP
    The government believes such windfall gains will cease once prices fall $40 from existing levels, Bajaj said.
    The government will review the windfall tax levied on domestically produced crude every two weeks based on exchange rates, international prices and the local cost of crude, government officials said.

    Revenue secretary Tarun Bajaj said the Centre has not fixed any price level at which the tax will be withdrawn, dismissing reports that it will do so if prices decline $40 per barrel from the current levels. Brent crude is at about $113 a barrel.

    "There is a way we will monitor it every two weeks, depending on the foreign currency rates and depending on where the international prices are," Bajaj said on the sidelines of an Assocham event. "What is the dollar to rupee, the international price of crude, what is the domestic cost of crude - will keep reviewing it."

    Domestic producers get international prices for crude supplied to refineries. With rates ruling at over $100 a barrel for months, they have made large profits.

    The government Friday imposed an export tax of ₹6 per litre tax on petrol and aviation fuel and ₹13 per litre on diesel exports along with a windfall tax of ₹23,250 per tonne on crude oil produced domestically.

    The government said "domestic crude producers are making windfall gains" while imposing the cess.

    Centre Board of Indirect Taxes and Customs (CBIC) chairman Vivek Johri also said the government had no price target at which the levy could be ended.

    oil

    "You expect it (crude oil price) to fall by $40?" he asked in response to queries. "There isn't such thinking yet. It is a very dynamic thing, so we have to wait and watch."

    Finance minister Nirmala Sitharaman said last week that "phenomenal profits" on exports at the expense of domestic availability had forced the government to impose the windfall levy and export duties on petrol, diesel and jet fuel.

    The government also mandated oil companies sell at least 50% of petrol exported in the domestic market for the fiscal year ending March 31, 2023. For diesel, this requirement has been put at 30% of the volume exported.

    The export curbs were imposed after supplies at some petrol pumps dried up in states such as Madhya Pradesh, Rajasthan and Gujarat amid high demand.

    28% GST slab to stay
    Bajaj said that the highest goods and services tax (GST) slab of 28% on 'sin' goods will stay in place, even though there is a push to consolidate slabs.

    "Of the 5, 12, 18 and 28% (rates), we would have to continue with 28%," Bajaj said. Given income disparity, there will be some luxury and sin items that should attract a higher rate of taxation. He said that the 5%, 12% and 18% slabs could be consolidated to two to start with and asked industry for suggestions on the matter. He ruled out any immediate plan to bring petroleum products under GST.

    "Fuel constitutes a larger part of their revenues--both the Centre and states have some apprehension. We will have to wait for some time," Bajaj said.

    At its meeting last week, the GST council gave another three months to the group of ministers (GoM) on rate rationalisation to submit its report. The GoM is headed by Karnataka chief minister Basavaraj Bommai.



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    ( Originally published on Jul 04, 2022 )
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