: Opinion: Windfall taxes make sense #IndiaNEWS #News By Dr Manoranjan Sharma The imposition of the windfall taxes and export duty evoked considerable debates across the development spectrum. The

Opinion: Windfall taxes make sense #IndiaNEWS #News
By Dr Manoranjan Sharma

The imposition of the windfall taxes and export duty evoked considerable debates across the development spectrum. The basic justification for the windfall taxes and export duty tax on petrol, diesel and Aviation Turbine Fuel (ATF) hikes imposed on July 1, 2022, stems from the fact that some oil refiners were raking in “phenomenal profits�? while domestic supplies were bleeding. Small producers whose annual crude production in the previous fiscal year was less than 2 million barrels were excluded from this cess. Domestic petroleum product pricing remained unaltered by this cess.
Indian measures are similar to the Chinese action. Refinitiv Eikon reveals that Asian refining margins of diesel rose over 192% post the Ukraine war amid a global shortage and changes in trade flows, while the gasoline cracks have more than doubled on tight supplies and recovering demand. Given this asymmetric and uneven level playing field, the government rightly stepped in to remedy this completely unacceptable situation.
New Rules
The government also framed new rules requiring oil companies exporting petrol to sell in the domestic market, the equivalent of 50% of the amount sold to overseas customers, for the fiscal year ending March 31, 2023. For diesel, this requirement was 30% of the volume exported. These export restrictions were also aimed at enhancing domestic oil supplies while curbing diesel and gasoline exports.
Given the high price differential, it is no wonder that private refiners were increasingly taking the export route rather than doing local sales. These well-conceived measures would thus help boost domestic supplies of petrol, check abnormal profits of a few firms, reduce sectoral arbitrage and the inherent asymmetry in the system.
Given the severe fiscal crunch, which was exacerbated by the Central government’s slashing of fuel taxes, subsidised gas cylinders, capped sugar exports and permitted duty-free import of 20 lakh tonnes of crude soya-bean oil and sunflower oil in late May to check the inflationary spiral (estimated to cause a hit of over Rs 1 lakh crore to public finances), this measure is expected to generate close to billion (Rs 94,800 crore) for the government in this financial year. Hence, it would almost offset the hit caused by reduced fuel taxes.
Correcting Anomaly
In sum, the government’s move was aimed at correcting an anomaly in the system, boosting tax collections and moderating the northward movement of prices (sticky CPI inflation, which rose for the seventh successive month from 7% in March 2022 to a 95-month high of 7. 8% in April 2022; 15% WPI inflation, the highest in 3 decades, breached the MPC mandated threshold of 4% /-2%).

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