The sluggish excise duty collections from petroleum and natural gas, combined with the discontinuation of the windfall tax regime in December, indicate a significant drop in the sector's overall tax contribution to the public exchequer for FY25, according to officials.
Excise Duty Collections Dip
Excise duty from petroleum products collected by the Centre stood at ₹1.22 trillion in the first half of FY25 (April-September), significantly lower than the ₹2.73 trillion collected during FY24. Data submitted to Parliament by the Petroleum and Natural Gas Ministry last week revealed this decline.
Officials attributed the reduced collections to lower windfall tax receipts in early FY25, compounded by the Centre’s decision to scrap the tax in December.
Windfall Tax Era Ends
The windfall tax, categorized as Special Additional Excise Duty (SAED), was introduced on July 1, 2022, to capture excess profits by oil companies stemming from soaring crude oil prices during the Russia-Ukraine conflict. It was applied to domestically-produced crude oil and the export of diesel, petrol, and aviation turbine fuel (ATF).
However, falling global crude oil prices eroded the rationale for the tax, leading to its discontinuation after 29 months.
Fuel Consumption on the Rise
Despite reduced excise duty collections, fuel consumption in India surged, reaching a record 157.53 million tonnes (mt) in the first eight months of FY25, up from 152.37 mt in the same period last year. This indicates that the decline in excise collections is unrelated to oil demand, which remains robust.
Excise duty rates on petrol and diesel—last revised in May 2022—currently stand at ₹19.90 per litre for petrol and ₹15.80 per litre for diesel, supplemented by state-level value-added tax (VAT) and other levies.
Sector’s Tax Contribution Trends
The petroleum sector’s total contribution to the exchequer rose marginally by 0.38% to ₹7.51 trillion in FY23, from ₹7.48 trillion in FY24. However, central government revenues from the sector shrank from ₹3.7 trillion in FY22 to ₹3.5 trillion in FY24.
Interestingly, the sector’s dividend contributions grew significantly, rising from ₹57,741 crore in FY23 to ₹82,308 crore in FY24.
Crude Oil Imports and Pricing Dynamics
India continues to import over 87.7% of its crude oil needs, with domestic petrol and diesel prices directly linked to international market rates.
As the government adapts its fiscal policies, the petroleum sector's evolving tax structure will remain crucial for balancing revenue collections and economic stability.
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