Finance Minister Nirmala Sitharaman on Monday defended the windfall tax on domestically produced crude oil and additional tax on exports of refined petroleum products, saying the levy has been imposed in full consultation with the industry.
From July 1, the government has imposed a windfall tax on domestically produced crude and additional tax on refined products like petrol, diesel and aviation fuel.
“Let me tell you frankly that I didn’t expect such a question from a potential investor. I had clearly stated that on the day this decision was made that India wants to be a refining hub, India wants to encourage investments in refineries, and India wants to… ensure that profitability is not taxed with the intension to earn revenue for the government,” Sitharaman told a summit organised by Elara Capital here.
“So the belief that windfall tax is ad hoc is slightly unfair. Because the price and the taxation rate decided are arrived at after full consultation with the industry. We’ve come up with these parameters based on cracks margins that the industry has given to us,” she said.
The minister added that she had clearly said everything would be done in consultation with the industry and it is doing that every 15th day.
The government is not interested in ad hocism when it comes to taxation in the oil and gas sector, she asserted.
From July 1 onwards, as the oil prices were on a song and many private sector fuel stations were running dry, the government had introduced a windfall tax on oil exports and domestically produced oil and gas to rein in what Sitharaman had described as “phenomenal profits” made by some oil refiners by exporting fuel at the expense of domestic supplies.
The move was expected to garner an additional tax of Rs 66,000 crore this fiscal, though the amount would vary depending on the price of crude and export prices of refined products.
From July, the tax on per litre of petrol and ATF export was Rs 6 each and on diesel it was Rs 13. Additionally, a Rs 23,250 per tonne tax was levied on crude oil produced domestically.
Accordingly, when crude prices fell later in July, government reduced the tax rates.
At the fourth fortnightly review on August 31, government raised windfall profit tax on diesel export to Rs 13.5 a litre from Rs 7 and that on aviation turbine fuel (ATF) to Rs 9 from Rs 2 from September 1.
Alongside, tax on domestically-produced crude too was hiked to Rs 13,300 per tonne from Rs 13,000.
To a question on when the decision on inclusion of government bonds in the global bond index of Morgan Stanley will be taken, she said, “I don’t know whether we’re holding it back or not. I think the global situation has changed a lot since I made that statement in the 2020 Budget. The global fund inflows have not been as big as we wanted it to be primarily due to other reasons. So it’ll come to its natural logical conclusion sooner.”
Inclusion of government bonds in the global bond index will attract an additional fund inflow of USD 25-30 billion annually.
Additional forex inflows would help shore up the current account and balance of payments, which are facing huge headwinds this fiscal due to crude price rise and jump in imports.
Currently, there is a cap on incremental foreign fund investments in government securities (G-Secs) annually, while there is no such restriction on equity investments.
However, she did not answer whether investors’ demand for tax and stamp duty gains will be met or not.
After pumping in over USD 35 billion from June 2020 through October 2021, mostly into equities, foreign portfolio investors (FPIs) have been on an exit mode. Between January and July 2022, they were net sellers to the tune of over USD 29 billion.
But they reversed the trend and have net invested over USD 6.5 billion in August alone, again mostly into equities.
On whether the government is planning to increase the tax-GDP ratio, which is only about 10 per cent now, she said widening the tax base is an issue that needs lot of consultation and analysis, though increasing number of income tax filings gives some clue on the possibility of widening it.
But the government wants to ensure that as and when it is done, it looks reasonable and is tech-driven, she noted.
The minister also credited the massive increase in tax collection to the introduction of technology for assessment and refunds.
Increase in tax collection is not due to raising any tax rates, but because of introduction of technology, including the faceless assessment system, she noted.