On Wednesday, the government removed the export tax on oil and gasoline from a week ago cut taxes on windfall profits on overseas supplies of diesel and ATF, as well as that imposed on domestically produced crude oil following the fall in global oil prices.
While the Rs 6 per liter export duty on petrol has been removed, the export tax on diesel and jet fuel (ATF) has been cut by Rs 2 per liter each to Rs 11 and Rs 4 respectively, government notifications show.
The tax on locally produced crude oil was also reduced to Rs 17,000 per tonne from Rs 23,250, a move that will benefit producers such as ONGC and Vedanta Ltd.
In addition, overseas supplies from refineries located in export-focused areas were exempted from the levies that were imposed on July 1.
On July 13, PTI reported that the revision of the windfall taxes was expected following a sharp fall in global oil prices.
India imposed windfall taxes on July 1, joining a growing number of nations taxing energy companies’ supernormal profits. But since then, international oil prices have cooled, reducing profit margins for producers and refiners alike.
While international crude oil prices fell on fears of a potential global recession, the cracks or margins of diesel, petrol and ATF collapsed.
July 1 export duties of Rs 6 per liter on petrol and ATF translated into US$12 per barrel, while the Rs 13 per liter tax on diesel was equivalent to US$26 per barrel. The windfall tax of Rs 23,250 per tonne on domestic crude oil production equates to USD 40 per barrel.
After the windfall tax, the spread realized for diesel and petrol fell to near-loss levels, while the realization of aviation fuel (ATF) and crude oil were also below their 15-year averages.
Oil’s realized spread after accounting for the windfall tax of USD 12 per barrel was close to a loss-making level of just USD 2 per barrel. Similarly, the diesel spread was also a pittance after factoring in the export charge of USD 26 per barrel.
The windfall tax cut will benefit Reliance Industries Ltd, which operates two oil refineries in Gujarat’s Jamnagar, one focused only on exports.
Oil and Natural Gas Corporation (ONGC) as well as Vedanta Ltd will benefit from the cut in tax on domestic oil producers.
The diesel refining spread almost halved from the peak of USD 55-60 per barrel seen in June to USD 30 per barrel. Likewise, ATF spreads collapsed from USD 50-55 per barrel to USD 25-30. Gasoline spreads were also reduced from USD 30-35 per barrel last month to USD 10-15.
At the same time, the price of Brent crude oil has also cooled by USD 15-20 per barrel in the last 2-3 weeks to around USD 100 per barrel.
When the taxes were introduced, it was estimated that they would bring in over ₹1 lakh crore of additional revenue throughout the year.
It is estimated that the windfall tax on crude oil production alone would generate revenue of Rs 65,600 crore and the tax on export products another Rs 52,700 crore if continued for the full year.