Special additional excise duty or SAED or windfall tax

  • July 2, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Special additional excise duty or SAED or windfall tax

Subject: Economy

Section: Fiscal Policy

Context:

In a series of measures to regulate the import and export of items such as crude oil and gold the government has imposed special additional excise duty/ cesses on exports of these items.

What?

  • A special additional excise duty/ cess on exports of petrol and diesel of Rs 6 per litre and Rs 13 per litre respectively has been imposed.
  • The import duty on gold has been hiked to 15 per cent from 10.75 per cent to curb imports of gold.
  • A SAED of Rs 6 per litre has also been imposed on exports of aviation turbine fuel (ATF) or jet fuel

Why?

  • To regulate the import and export of these items and increase domestic supply on the backdrop of reducing supply and mounting international crude oil prices.
    • The petroleum refiners import crude oil at international parity and export the petroleum products at globally prevailing prices, which are very high.
    • As exports are becoming highly remunerative, it has been seen that certain refiners are drying out their pumps in the domestic market.
    • The cesses of Rs 6 per litre on petrol and Rs 13 per litre on diesel have been imposed to disincentive their exports.
    • The Directorate General of Foreign Trade (DGFT) has imposed an export policy condition that exporters would be required to declare at the time of export that 50% of the quantity mentioned in the shipping bill has been/ will be supplied in the domestic market during the current fiscal.
    • Earlier, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent. Along with agriculture infrastructure development cess (AIDC) of 2.5 per cent will take effective gold customs duty to 15 per cent.

Concept:

What is Excise Duty?

  • Excise duty is a form of indirect tax imposed on goods for their production, licensing and sale.
  • It is the opposite of Customs duty in the sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
  • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
  • The GST introduction in July 2017 subsumed many types of excise duty. Today, excise duty applies only on petroleum and liquor.

Types of excise duty in India-

  • Basic Excise Duty
    • Basic excise duty is also known as the Central Value Added Tax (CENVAT). This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
    • This duty was levied under Section 3 (1) (a) of the Central Excise Act, 1944. This duty applied on all goods except salt.
  • Additional Excise Duty
    • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
    • This duty was levied on some special category of goods.
  • Special Excise Duty
    • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.

Presently the central excise duty comprises a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

Pricing of petroleum products:

1. Base price-India imports almost no petrol or diesel. It imports crude. But the price paid on fuel is based largely on import parity price, or the price you would pay if India were to be actually importing petrol or diesel

Oil refiners, who make these products( petrol and diesel ) in India, are paid what is called a Refinery Gate Price (RGP) based on the Trade Parity Price (TPP) which is a weighted average of the Import Parity Price (IPP) and the Export Parity Price (EPP). IPP is the price importers would pay if they actually imported the product. So, it includes not just the cost of the fuel itself, but also freight charges, insurance, customs duty and port charges. EPP is what somebody actually exporting the product would get. IPP has an 80% weight and EPP only 20% in the TPP.

Implication-Indian refiners would get this benefit without incurring the duty itself. This partly explains why they have actually become more profitable at a time when their raw material (crude oil) is becoming more expensive.

2. The Centre charges excise duty on the base price –accounting for 26 per cent and 23 percent of the final price of petrol and diesel, respectively. There are four components of the Central Excise Duty on petrol and diesel.

  • Basic Excise Duty-Centre levies excise at specific rate , that is, Rs X a litre and States/Union Territories levy at ad valorem, that is, at a percentage of the total value.
  • Special Additional Excise Duty
  • Agriculture Infrastructure & Development Cess (AIDC)
  • Road and Infrastructure cess 

Among these four components, money collected through the Basic Excise Duty is part of the Devolution Pool.

3. The dealer’s commission-amounts to another 4 and 3 percent of the selling price of the two petroleum products.

4. The States levy value-added tax (VAT) -on the cost of petrol and diesel, including excise duty and dealer’s commission.

economy Special additional excise duty or SAED or windfall tax