In a sign that windfall taxes on the oil-sector companies are here to stay, the Centre on Thursday raised the export tax — special additional excise — on exports of diesel and aviation turbine fuel (ATF) to levels even higher than when these imposts were introduced three months ago, and raised the additional excise duty on heavily-taxed domestic crude marginally.
Effective September 1, export of diesel will attract a tax of Rs 13.5/litre, up from Rs 7 previously, while shipments of ATF will be subject to an impost of Rs 9/litre, up from Rs 2. In the fourth fortnightly review of the taxes, the government also raised the tax on domestically-produced crude oil to Rs 13,300/tonne from Rs 13,000, in tandem with crude price increases which will benefit domestic producers, thanks to the “trade parity pricing” they follow.
Though the government has cited a rise in refinery margins for these products for the decision, analysts pointed out that exports of both these fuels have slowed in recent weeks.
On July 1, the Centre imposed a 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.
Subsequently, in the first review of the taxes on July 20, the Centre scrapped the export tax on petrol. Also, the exports from special economic zones were subsequently exempted from the tax, giving some relief to Reliance Industries, which exports much of its output from the refineries housed in the tax-free enclave in Jamnagar, Gujarat.
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 apparently neglected supplies to domestic retail outlets, while tapping the highly remunerative export markets.
Morgan Stanley said, “India diesel exports are now 15-20% below normalised levels, with almost no jet fuel exports in July 2022 — the first month of refined product tax. Export tax on diesel and jet fuel was raised by $17/bbl and $14/bbl to $27/bbl and $18/bbl, respectively, as refinery margins for these products have risen.” The Indian basket of crude stood at $102/bbl on August 30, compared with the August average of $97.4/bbl, reflecting a price rise in the second half of the month. However, the August average was lower compared with $105.49 in July and $116.01 in June.
“The recovery in oil prices led to a slight upward revision in windfall taxes on domestic oil production from ~$22/bbl to $22.8/bbl. The adjustments, while still ad hoc, highlight the producer oil price cap of $70-75/bbl and profitability of $20-21/bbl,” Morgan Stanley said.
Domestic crude is subject to a host of taxes — oil development cess and royalties. The effective tax is around 50% at present.
Brent, the world’s best-known benchmark for crude oil, was trading 2.2% lower at $93.54/ barrel on Thursday, indicating that the Indian basket price may fall in September. This may lead to a cut in windfall taxes on domestically produced crude.
A senior official had told said the windfall taxes may fetch the Centre an additional revenue of Rs 30,000-40,000 crore in FY23, partly offsetting the likely revenue loss of about Rs 85,000 crore due to the excise duty cut on petrol and diesel announced in May.