Govt scraps windfall tax on petrol exports

New Delhi: The government on Wednesday scrapped a windfall tax on the export of petrol and cut the levy on overseas shipments of diesel and ATF as well as on domestically produced crude oil following a decline in global oil prices. While the Rs6 a litre export duty on petrol was scrapped, the tax on the export of diesel and jet fuel (ATF) was cut by Rs 2 per litre each to Rs 11 and Rs 4 respectively, government notifications showed. T

he tax on domestically produced crude was also cut to Rs 17,000 per tonne from Rs 23,250, a move that will benefit state-owned Oil and Natural Gas Corporation (ONGC) and Vedanta Ltd. Also, correcting the anomaly that crept in when the windfall taxes were slapped on July 1, the government exempted fuel exports from refineries located in export-focused zones from the levies. The move will benefit Reliance Industries whose exports had become uncompetitive due to the export levies that were as high as $26 per barrel. India imposed windfall taxes on July 1, joining a growing number of nations that taxes super normal profits of energy companies.

But international oil prices have cooled since then, eroding profit margins at both oil producers and refiners. International crude prices slumped on concerns of a potential global recession, which was mirrored in cracks or margins on diesel, petrol and ATF falling. The July 1 export duties of Rs 6 per litre on petrol and ATF translated into $12 per barrel, while Rs 13 a litre tax on diesel was equivalent to $26 a barrel. The Rs 23,250 per tonne windfall tax on domestic crude production equalled $40 per barrel.

The realised spread on petrol after considering the tax was near a loss-making level of just $2 per barrel, while the diesel spread too was a meagre sum. For oil producers, the windfall levy, which was separate from the royalty and cess they continue to pay, took away 40 per cent of their earnings. This as, petrol cracks have dipped to $10 per barrel in July from $34.6 in June (currently below $3 per barrel), diesel cracks fell to $34.9 from $48.9 per barrel and Jet/kero cracks declined to $28 per barrel from $41.6.