New Delhi: The oil ministry has sought a review of the two-and-a-half-month old windfall profit tax on domestically produced crude oil saying it goes against the principle of fiscal stability provided in contracts for finding and producing oil. The ministry in the August 12 letter, reviewed by PTI, sought exemption for fields or blocks, which were bid out to companies under Production Sharing Contract (PSC) and Revenue Sharing Contract (RSC), from the new levy.
It stated that companies have been since the 1990s awarded blocks or areas for exploration and production of oil and natural gas under different contractual regimes, wherein a royalty and cess is levied and the government gets a pre-determined percentage of profits. The ministry, according to the letter, was of the opinion that the contracts have an in-built mechanism to factor in high prices as incremental gains get transferred in form of higher profit share for the government.
Emails sent to the oil ministry as well as the finance ministry for comments remained unanswered. India first imposed windfall profit tax on July 1, joining a growing number of nations that tax super normal profits of energy companies. While duties were slapped on the export of petrol, diesel and jet fuel (ATF), a Special Additional Excise Duty (SAED) was levied on locally produced crude oil.
The SAED on domestic crude oil initially was Rs 23,250 per tonne (USD 40 per barrel) and in fortnightly revisions brought down to Rs 10,500 per tonne. The government levies a 10-20 per cent royalty on the price of oil and gas as also an oil cess of 20 per cent on production from areas given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) on a nomination basis.