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NEW DELHI : Small oil and gas field operators have asked the government to withdraw the windfall tax on crude produced by them this year.
In a letter to the oil ministry, the Association for Discovered Small Field Operators (ADSFO) said they should be exempt from petroleum cess (levied by way of special additional excise duty or SAED) or the windfall tax on their entire production for FY23 as it would be the first year of production for almost all the field operators.
The Centre imposed a cess on crude and petroleum products on 1 July to capture abnormal profits being made by oil companies amid a sharp rise in global oil prices, but this was not applicable to crude oil produced from DSF (discovered small field).
Subsequent notifications clarified that windfall tax would not be levied on operators whose crude oil production was less than 2 million barrels in FY22.
A further notification also clarified that windfall tax would not be levied on incremental production over the production reported in FY22. ADFSO, in its letter, has said that though the intention of notification seems not to overtax small and marginal field operators, the conditions in the notifications make it difficult for DSF operators to get an exemption from windfall tax.
They said as most of the DSF operators were yet to produce oil and gas from their fields and the first production may start in FY23, a clarification should be issued by the finance ministry that all production should be exempt from cess this year.
The letter mentions that there is no way that DSF operators could claim exemption from cess on incremental production during the previous year as there was no production during that period. So, all production in FY23 should be taken as incremental as this granted complete exemption from windfall tax. The association has further requested the Centre to notify clarification on the exemption of crude petroleum from contract areas on revenue sharing contracts (RSC). The letter mentions that as RSCs framework has in-build provisions to deal with a sharp escalation in oil prices where the government’s share of revenue in percentage terms increases with the increase in revenue, thereby keeping a check on windfall gains that May accrue to the contractors on account of escalation of oil prices.
It is worthwhile to submit that since huge capital investment has been made to bring these projects into development mode and production, it would be desirable that the government issue clarification lessen the burden of windfall taxes on small players, the association said in its letter.