Sluggish collection of excise duty from petroleum and natural gas — even before the windfall tax regime got scrapped in December — shows that the sector’s overall tax contribution to the public exchequer is likely to drop significantly in FY25, said officials.

Tax collected by the Centre from petroleum as excise duty was Rs 1.22 trillion during the first six months (April-September) of FY25. This is less than half of the Rs 2.73 trillion collected for the full FY24, data from the Petroleum and Natural Gas Ministry submitted to Parliament last week showed.

The slow pace of collections in the first six months of FY25 is due to lower receipts from the windfall tax, Petroleum Ministry officials said.

“With the windfall tax now being junked by the Centre in early-December, the government expects lesser tax from the sector in the current year,” an official said.

Excise duties on petrol and diesel were last changed in May 2022.

Meanwhile, fuel consumption in India, a proxy for oil demand, hit a record 157.53 million tonnes (mt) in the first eight months of the current year. This was up from 152.37 mt in the same period of the previous financial year. It signifies that oil demand is not behind the fall in excise collections. 

Meanwhile, classified as special additional excise duty (SAED), windfall tax was levied on domestically-produced crude oil, and export of diesel, petrol, and aviation turbine fuel (ATF).

In place since July 1, 2022, it was designed to tax the profits of oil companies as a result of the Russia-Ukraine conflict.

But falling global prices of crude oil have ended the justification for the tax, and it was discontinued last week, after 29 months.

The sector’s total contribution had risen in FY23, albeit by a marginal 0.38 per cent to Rs 7.51 trillion from Rs 7.48 trillion in FY24. It had shrunk by 3.4 per cent in FY23 compared to FY22.

Within this, its contribution to the central government through taxes shrank to Rs 3.5 trillion in FY24 from Rs 3.7 trillion in the year before.

Meanwhile, the sector's contribution in the form of dividends rose to Rs 82,308 crore from Rs 57,741 crore.

India imported more than 87.7 per cent of its crude oil requirements in 2023-24. The prices of petrol and diesel in the country are linked to their respective prices in the international market.