Export tax on diesel, aviation turbine fuel hiked; windfall levy on domestic oil production up

Tax on domestically-produced crude oil too been hiked to Rs 13,300 per tonne from Rs 13,000

The government on Thursday raised the tax on the export of diesel and jet fuel (ATF) and hiked the windfall profit levy on domestically-produced crude oil in line with rising product margins and oil prices.

At the fourth fortnightly review, the government raised the windfall profit tax on the export of diesel to Rs 13.5 per litre from Rs 7 per litre.

The tax on aviation turbine fuel (ATF) exports too has been hiked to Rs 9 from Rs 2 per litre with effect from September 1, according to a finance ministry notification issued late Wednesday night.

Alongside, the tax on domestically-produced crude oil too has been hiked to Rs 13,300 per tonne from Rs 13,000.

The new levies come into effect from Thursday, September 1.

Read | Petrol sales rebound in August, diesel lags

The recovery in oil prices in the second half of August as compared to the first fortnight of the month led to a slight upward revision in windfall taxes on domestic oil production. These are now $22.8 per barrel, up from $22 previously.

"The adjustments, while still ad hoc, highlight the producer oil price cap of $70-75 per barrel and profitability of $20-21 a barrel," Morgan Stanley said in a note.

The export tax on diesel and jet fuel was raised by $17 per barrel and $14 to $27 a barrel and $18, respectively, as refinery margins for these products have risen.

While private refiners Reliance Industries Ltd and Rosneft-based Nayara Energy are the principal exporters of fuel like diesel and ATF, the windfall levy on domestic crude targets producers like state-owned Oil and Natural Gas Corporation (ONGC) and Vedanta Ltd.

India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies. But international oil prices have cooled since then, eroding the profit margins of both oil producers and refiners.

Export duties of Rs 6 per litre ($12 per barrel) were levied on petrol and aviation turbine fuel and Rs 13 a litre ($26 a barrel) on diesel. A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied.

The duties were partially adjusted in the previous three rounds on July 20, August 2 and August 19, and were removed for petrol.

The basket of crude oil that India imports averaged $97.40 per barrel in August, down from $105.49 in July and $116.01 in June.

Rates have declined since and Brent, the world's best-known benchmark for crude oil, was trading at $93.28 per barrel on Thursday, down 2.47 per cent over the previous close.

If the declining trend continues, the levy on domestically- produced crude oil is likely to be cut at the next revision due in mid-September.