New Delhi: The government’s tax revenue from petroleum products is witnessing a steady decline, exacerbated by the recent removal of the windfall tax on domestically produced crude oil. Between April and September 2024, the government collected Rs 1.22 lakh crore in taxes from petrol and diesel, signaling a downward trend compared to Rs 2.73 lakh crore collected during the 2023-24 financial year.
The windfall tax, introduced in July 2022 in response to surging global oil prices following the Russia-Ukraine war, aimed to curb the export of domestically produced crude oil, diesel, and aviation turbine fuel (ATF). However, with falling international oil prices, the tax gradually lost relevance and was officially withdrawn last week after 29 months of implementation.
Oil Demand Remains High Despite Revenue Dip:
Interestingly, the reduction in tax revenue is not linked to oil demand. From April to November 2023, India sold 157.33 million tonnes (MT) of oil, surpassing the 152.37 MT sold during the same period in 2023-24. This highlights that tax policy changes, rather than demand fluctuations, are driving the revenue decline.
Currently, petrol incurs a production duty of Rs 19.90 per liter, and diesel carries Rs 15.80 per liter, with state governments levying additional VAT. The removal of the windfall tax has further impacted the government’s earnings, even as domestic production and consumption of oil continue at robust levels.
Impact on Fiscal Health:
The windfall tax withdrawal is expected to further decrease oil-related tax revenue in the coming months, potentially affecting fiscal calculations. Experts suggest that the government will need to explore alternative revenue avenues to offset this shortfall while ensuring stable domestic energy prices.
The evolving dynamics of oil taxation underline the complexities of balancing revenue generation, domestic consumption, and the global oil market’s influence on policy decisions.
