The government on Wednesday slashed windfall tax on domestically produced crude, diesel and aviation turbine fuel, withdrew the levy on petrol, and exempted exports of fuels from special economic zone (SEZ) from it.
The development comes in the wake of softening of international oil prices and which are expected to benefit energy firms. There has been no change in the duty on fuel sold in the retail market.
The decision, announced in a notification issued by the Union finance ministry on Tuesday late night, comes less than three weeks of the government levying the windfall tax.
The notification said that the ministry was amending its June 30 decision on levying the taxes after “being satisfied” that it was “necessary in the public interest to do so”.
According to the notification, windfall tax on crude has been reduced from ₹23,250 per tonne to ₹17,000 per tonne, on diesel from ₹13 per litre to ₹11, and ATF from ₹6 per litre to ₹4, effective Wednesday. The ₹6 a litre levy on petrol is completely withdrawn and fuel products of SEZ refineries are completely exempt from such levies.
Two persons familiar with the matter on condition of anonymity said the changes have been made on the plea of oil refiners, who sought immediate exemptions as international fuel rates plunged.
While India’s average crude oil import price fell by 9.08% from $116.01 per barrel in June to $105.47 a barrel (up to July 20), benchmark petrol plunged by 19.17% in the corresponding period (from $148.82 per barrel in June to $120.29 till July 20) and diesel by 15.52% (from $170.92 per barrel in June to $144.38 a barrel till July 20).
The announcement of the reduction in windfall taxes saw a surge in share prices of beneficiaries such as Reliance Industries (RIL; up by 2.47% on Wednesday’s close), Oil and Natural Gas Corporation (ONGC; 4%), and Vedanta, 6.22%. Overall, the 30 stock BSE Sensex closed 1.15% up at 55,397.53 on Wednesday.
“The tax is completely withdrawn for exports of petrol because most of the private petrol pumps are now selling the fuel domestically after a significant drop in its rate in the international market,” one of the two people mentioned above said.
The government from July 1 imposed a windfall tax on exports by oil refiners and producers, in a decision aimed at increasing local supplies and boosting its revenues. Officials said then that even overseas supplies from SEZs would attract the windfall tax.
The tax was imposed after the companies were seen to be making “abnormal” profits with oil prices shooting up in global markets due to geopolitical turmoil, the union finance ministry said while imposing the tax.
HT on May 27, first reported that India was considering a windfall tax on petroleum products, on companies that were state-owned as well as private, to offset the ballooning public expenditure on fuel, food and fertiliser subsidies amid skyrocketing inflation.
Achal Chawla, Tax Partner at EY India said the reduction in levies are “on account of the reduction in global crude prices”. “We may see further fluctuation in SAED [special additional excise duty] in the coming months depending on the global prices. The government may explore to eliminate this levy itself once the prices go down below 80$,” he said.