The government cut the windfall tax on domestically-produced crude oil to Rs 8,000 per tonne from Rs 10,500, and halved the levy on export of diesel to Rs 5 per litre, effective Sunday. It also scraped a levy of Rs 5/litre on export of jet fuel, at the sixth fortnightly review of the one-off taxes on oil companies.
The taxes were introduced on July 1, as the government felt that the elevated crude prices were allowing oil companies to make windfall profits, and that the exchequer must get a share of such gains.
The reduction in the tax rates follows the easing of crude oil prices in international markets.
In the previous review a fortnight ago, the Centre had slashed the windfall tax on domestic crude by 21% and cut the special levies on export of diesel and ATF by 37% and 44% respectively, citing a moderation of refining margins.
While private refiners Reliance Industries and Rosneft-based Nayara Energy are the principal exporters of diesel and ATF, the windfall levy on domestic crude targets producers like state-owned ONGC and Vedanta-controlled Cairn.
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 and ATF cracks were around $25-50/bbl.
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.