The recent notion by the Indian admin to lower the windfall profit tax on exports to a min of Rs 0.50 per liter and complete waiver of aviation turbine fuel (ATF) is expected to provide necessary support to the Indian oil giants. This is the second consecutive reduction in rate. Last time it was decreased on february 16 2023. These tax rates are re-evaluated every fortnight, factoring in the average oil prices over the preceding two weeks, with the latest tax rates coming into effect on March 4, 2023.
Crude oil is a crucial resource for India, and the government imposes taxes on the super-normal profits of energy companies. The windfall profit tax was first introduced on July 1, 2022, with export duties of Rs 6 per litre (USD 12 per barrel) each on petrol and ATF, and Rs 13 a litre (USD 26 a barrel) on diesel. In addition, a windfall profit tax of Rs 23,250 per tonne (USD 40 per barrel) was levied on domestic crude production. However, in the very first review, the export tax on petrol was scrapped.
The Indian admin decision to reduce the burden of tax rates is aimed to make Indian fuel more competitive in the global markets, particularly for Reliance Industries Ltd and Nayara Energy, which are the primary exporters of fuel in the country.
The levy on fuel exports is based on the difference between the international oil price realized and the cost to rewrite it in 500 words. The increase in the levy on domestically produced crude oil from Rs 4,350 to Rs 4,400 per tonne is likely to impact companies such as Oil and Natural Gas Corporation (ONGC), which produce crude oil. However, the increase is marginal and is not expected to have a significant impact on the industry.
In conclusion, the reduction in windfall profit tax on the export of diesel and ATF, combined with the marginal increase in the levy on domestically produced crude oil, is a welcome move for Indian oil companies. The government’s decision to review tax rates every fortnight based on the average oil prices of the previous two weeks demonstrates its commitment to the industry and its responsiveness to changing market conditions. Indian oil companies will be watching these tax rates closely to ensure that they remain competitive in the global market.