The government on Saturday raised the windfall tax on domestically-produced crude oil to Rs 11,000 from Rs 8,000 per tonne, and the levy on export of diesel to Rs 12 from Rs 5 per litre, citing a rise in global crude prices in the last fortnight. The revised taxes will be effective from Sunday. It also reintroduced a levy of Rs 3.5/litre on export of jet fuel, at the seventh 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 increase in the tax rates follows a rise in crude oil prices in international markets. The Indian basket of crude oil price averaged $92.91/bbl so far in October compared with $90.71/bbl in September. In the previous review a fortnight ago, the Centre had slashed the windfall tax on domestic crude from Rs 10,500 to Rs 8,000 per tonne. It had also halved the levy on export of diesel to Rs 5 per litre and had scrapped the tax on aviation turbine fuel, due to a moderation of crude prices and refining margins.
The taxes move either way, depending on crude prices and the refining spread. 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. 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.