Government raises windfall profit tax on export of diesel; cuts domestic crude oil tax

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• Aug 19, 2022 | Poonam Nath

The government raised the surplus profit tax on diesel exports to Rs 7 per litre and reinstated a tax on jet fuel exports.

Digital Desk:  The government of India increased the excess profit tax on diesel exports to Rs 7 per litre and reinstated a tax on jet fuel exports on Thursday, but reduced the tariff on locally produced crude oil to reflect lower rates.

According to a finance ministry announcement, during the third fortnightly review, the government increased the windfall profit tax on diesel exports to Rs 7 per litre from Rs 5 per litre and imposed a Rs 2 per litre tax on ATF exports.

The government repealed the windfall profit tax on ATF (Aviation Turbine Fuel) exports earlier this month.

In addition, the tax on domestically produced crude oil has been reduced from Rs 17,750 to Rs 13,000 per tonne.

The export tax was raised as cracks or margins increased, while the domestic oil tax was decreased as international oil prices fell to a six-month low.

On July 1, India became the first country to levy windfall profit taxes on energy corporations, joining a growing list of countries that do so. However, international oil prices have now dropped, diminishing profit margins for both oil producers and refiners.

On July 1, export tariffs of Rs 6 per litre (USD 12 per barrel) on petrol and ATF and Rs 13 per litre on diesel were imposed (USD 26 a barrel). A windfall profit tax of Rs 23,250 per tonne on domestic crude output (USD 40 per barrel) was also imposed.

Following that, on July 20, the Rs 6 per litre export tariff on petrol was abolished, while the tax on the export of diesel and jet fuel (ATF) was reduced by Rs 2 per litre to Rs 11 and Rs 4, respectively. The tariff on domestic crude was also reduced to Rs 17,000 per tonne.

Following that, on August 2, the export tax on diesel was reduced to Rs 5 per litre and the ATF tax was eliminated, owing to a decline in refinery cracks or margins.

However, in response to a small increase in international crude prices, the charge on domestically produced crude oil was raised to Rs 17,750 per tonne.

The tax on fuel exports was hiked in the third fortnightly review, although the tariff on domestically produced crude oil was reduced.

The tax cuts earlier this month came as India's trade deficit reached a record high in July, as rising commodity prices and a weak rupee boosted the country's import bill.

The trade deficit extended to USD 31.02 billion in July, up from USD 26.18 billion in June. This is because decreased exports and rising commodity costs, along with a weak rupee, are ballooning the import bill. In July, imports increased 43.59 percent year on year, while exports fell 0.76 percent.

International oil prices have since fallen below USD 95 per barrel, but cracks in 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.