India has raised windfall tax on petroleum, crude oil and aviation turbine fuel, according to a government order dated Jan. 2.
It raised windfall tax on crude oil to 2,100 rupees ($25.38) per tonne from 1,700 rupees ($20.55), effective on Tuesday, the order said.
The federal government also raised export tax on diesel to 7.5 rupees per litre from 5 rupees, while raising the windfall tax on ATF to 4.5 rupees per litre from 1.5 rupees, the document showed.
India, the world’s largest consumer and importer of oil, has been buying Russian crude barrels at well below a $60 price cap agreed by the West.
The country in July imposed the windfall tax on crude oil producers and levies on exports of gasoline, diesel and aviation fuel after private refiners sought overseas markets to gain from robust refining margins, instead of selling at lower-than-market rates in the country.
The government levies tax on windfall profits made by oil producers on any price they get above a threshold of USD 75-76 per barrel.
Earlier on 16 December, the government slashed the windfall profit tax levied on domestically-produced crude oil as well as on export of diesel and ATF following a decline in global oil prices, according to an official order.
The levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been cut steeply to ₹1,700 per tonne from ₹4,900, the order dated December 15 said.
Crude oil pumped out of the ground and from below seabed is refined and converted into fuel like petrol, diesel and aviation turbine fuel (ATF).
India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of ₹6 per litre (USD 12 per barrel) each were levied on petrol and ATF and ₹13 a litre (USD 26 a barrel) on diesel.
The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
“India’s fortnightly windfall tax revision on oil producers was on expected lines,” Morgan Stanley said commenting on the move.
Windfall tax on domestic oil production declined from about USD 8.3 per barrel to USD 2.8. “The adjustment, while still ad hoc, highlighted the cap on the producer oil price at around USD 75 per barrel and on profitability at USD 20-26 per barrel,” it said.
Export tax on diesel has been reduced from USD 15.7 per barrel to USD 9.6 and jet fuel saw decline from USD 9.6 a barrel to USD 2.9.
Reliance Industries Ltd, which operates India’s largest only-for-export oil refinery at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.
“RIL’s gross refining margin under the new tax regime is now USD 15.1 per barrel (as 30 per cent of refinery output is subject to this tax), and increased with lower crude loss, crude discount, petcoke gasifier benefit and decline in export taxes,” Morgan Stanley said.
The implied diesel and jet fuel cracks, adjusted for the windfall tax, average USD 15 per barrel and USD 26 a barrel, respectively.
“We remain bullish (on) the refining cycle and see upside risks to regional margins despite investor concerns around China exports as global inventories continue to unwind,” it added.
The basket of crude oil that India imports averaged USD 77.88 per barrel in December as against USD 87.55 last month. It averaged USD 91.70 per barrel in October.
The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference between the international oil price realised and the cost.
Download The Mint News App to get Daily Market Updates.