Finance Ministry Receives Oil Ministry's Proposal To Scrap Windfall Tax, Sources Say

The Finance Ministry has received a proposal from the Oil Ministry to eliminate the windfall tax on crude oil, according to people familiar with the matter.

Officials are yet to decide on this proposal, and discussions are considering the possibility of maintaining the tax at a rate of zero instead of completely abolishing it, the people said.

The government first introduced windfall profit taxes in July 2022, following a trend among various countries that tax the supernormal profits of energy companies.

Additionally, the Oil Ministry has requested that natural gas be included in the Goods and Services Tax framework, the people said, adding that the upcoming GST Council meeting may address the inclusion of petroleum products under GST.

Currently, petrol and diesel are taxed under Value Added Tax rather than GST. The rates for petrol vary from state to state, depending on local taxation. However, many states are hesitant to include petroleum products under GST, fearing that it could lead to revenue losses.

Implementing GST is being considered as a solution to the high rates of petrol and diesel in the country, as it would eliminate the cascading effect of taxes—where state VAT is applied to both the cost of production and the central excise duty charged on that output.

In an exclusive interview with NDTV Profit in July, Finance Minister Nirmala Sitharaman emphasised that the GST law already has provisions for including petroleum products. She noted that for this transition to occur, states must come together and reach a consensus within the GST Council.

"If they agree on a rate and all come together to decide that GST will include petroleum products, we can implement it immediately," Sitharaman told NDTV Profit.

She reiterated that the necessary provisions to include petroleum products under GST have already been established, and it is now up to the GST Council to discuss and make a final decision.