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RBI now going inside: Windfall tax on domestic crude cut

Diesel cracks have been in the range of $25-50/bbl since last month. ATF cracks were around $25-50/bbl, ICICI Direct said in a report on September 10.

RBI now going inside: Windfall tax on domestic crude cut
The move will benefit state-run ONGC & OIL and private refiner Reliance Industries, which is the principal exporter of petroleum products.

The Centre on Friday slashed the windfall tax on domestic crude by 21% to Rs 10,500/tonne, in the fifth fortnightly review of the one-off tax on oil companies, taking into consideration the cooling of global crude prices. It also cut the special levy on export of diesel by 37% to Rs 8.5/litre and rimmed the tax on jet fuel shipments by a steeper 44% to Rs 5/litre, as refining margins moderated from last revision.

The move will benefit state-run ONGC & OIL and private refiner Reliance Industries, which is the principal exporter of petroleum products.

The imposts were introduced on July 1, to ensure that the exchequer benefits from the windfall gains of oil companies due to elevated crude prices and refining margins. These levies have since been reviewed on a fortnightly basis.

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The Indian basket of crude has moderated to $92.68/barrel on average in the first 15-days of September compared with the August average of $97.4/bbl. Benchmark Singapore’s gross refining margin (GRM) was trading in the range of $8-12/bbl since August.

Diesel cracks have been in the range of $25-50/bbl since last month. ATF cracks were around $25-50/bbl, ICICI Direct said in a report on September 10.

The combination of volatile geopolitical worries, steady demand and refinery supply woes had kept gross refining margins (GRM) elevated in Q1FY23, with benchmark Singapore GRMs at $21/bbl and a record $31.8/bbl for state-run Indian Oil during the period.

On July 1, the Centre imposed special additional excise duty of Rs 23,250/tonne on crude and export taxes on petrol, diesel and ATF at Rs 6/litre, Rs 13/litre and Rs 6/litre, respectively. The tax on petrol was removed subsequently. No windfall tax is applicable on exports from Special Economic Zones.

The government’s rationale for introducing these taxes is to lay its hands on a chunk of the ‘windfall profits’ reaped by some of the domestic firms, on the back of elevated global oil prices. The move is also aimed at addressing the crunch in the domestic fuel market, as private refiners neglected supplies to domestic retail outlets while tapping the highly remunerative export markets.

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