India increased the windfall profit tax on the export of diesel on Thursday to Rs 7 per litre and reinstated a tax on the export of jet fuel in response to the recent decline in global oil prices and refining spreads.
According to a notification from the finance ministry, the government has reduced the tax on domestically produced crude oil in response to softening rates.
The government introduced a ₹2 per litre tax on jet fuel (ATF) exports during the third fortnightly review and increased the windfall profit tax on diesel exports from ₹5 to ₹7 per litre.
The administration had eliminated the windfall profit tax on jet fuel exports earlier in August.
In addition, the tariff on locally produced crude oil has been decreased from Rs 17,750 to Rs 13,000 per tonne.
The tax on exports was increased when cracks or margins increased, but the tax on domestic oil production was decreased as global oil prices fell to their lowest level in six months.
On July 1, India introduced its first windfall profit tax, joining an increasing number of countries that tax energy companies’ higher-than-average profits. The profit margins of both oil producers and refiners have declined since then due to the cooling of the global oil market.
On July 1, export taxes of USD 12 per barrel and Rs 6 per litre (for gasoline and ATF) and Rs 13 for diesel were imposed (USD 26 a barrel). On domestic crude output, a windfall profit tax of Rs 23,250 per tonne (USD 40 per barrel) was also imposed.
After that, on July 20, during the first fortnightly review, the Rs 6 export duty on gasoline was eliminated, and the Rs 7 and Rs 4 export taxes on diesel and aviation turbine fuel (ATF), respectively, were reduced by Rs 2 per litre. Additionally, the tax on domestic crude production was decreased to Rs 17,000 per tonne.
Following a decline in refinery cracks or margins, on August 2, the export tax on diesel was reduced to Rs 5 per litre and that on ATF was eliminated. But in response to a little increase in global crude oil prices, the tax on domestically produced crude oil was increased to Rs 17,750 per tonne.
The third fortnightly assessment resulted in an increase in fuel export taxes but a decrease in domestic crude oil taxes.
Taxes were cut earlier this month as India’s trade deficit increased to a record level in July as high commodity prices and a depreciating rupee increased the country’s import costs.
From USD 26.18 billion in June, the trade deficit increased to USD 31.02 billion in July. The import bill is rising as a result of declining exports, rising commodity costs, a weak rupee, and these factors together. In July compared to the same month last year, imports increased by 43.59% while exports decreased by 0.76%.
Since then, the price of oil has dropped to below USD 95 per barrel, while cracks on diesel and ATF have increased.
According to sources in the industry, the government is working on a principle to leave certain healthy margins while taxing earnings above that for both crude oil producers and refiners.
