In a bid to offer relief to oil producers and refiners in the country, the central government eliminated a levy on gasoline exports and reduced windfall taxes on fuel exports. The decision came after oil prices in the international market had cooled.
The Centre cut the windfall tax on diesel and aviation fuel shipments by Rs 2 per litre each. It also scrapped an export levy of Rs-6-a-litre on gasoline exports, according to a government notification. The central government also reduced the tax on domestically produced crude oil by about 27 per cent to 17,000 rupees a ton.
This move will help companies such as Reliance Industries Limited, Oil and Natural Gas Corporation and Oil India Limited. The changes were effective from July 20.
“The relief announced by the government for the petroleum sector through reduction in windfall tax and cuts in duties on exports will be a major boost for the sector,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
On July 1, India introduced windfall tax on oil producers and refiners to tap their higher overseas margins. The central government imposed export duties on petrol and ATF (Rs 6 per litre) and diesel (Rs 13 a lire) and introduced a windfall tax on domestic crude production (Rs 23,250 per tonne).”Based on the production of crude oil and export of petroleum products in India in the fiscal year ended on March 31, 2022 (fiscal 2021), we estimate that the government will generate close to $12 billion of additional revenue for the remainder of fiscal 2022,” Moody’s Investors Service said earlier.
However, the international fuel prices have declined since then, lowering profit margins at both oil producers and refiners. Brent crude price has been reduced by USD 15-20 per barrel in the past two-to-three weeks to about USD 100 per barrel.
“Starting from July 1, the Government of India imposed a windfall tax on oil producers and refiners that had gained due to high overseas refining spreads and global crude prices, thus achieving super normal profits. However, due to the current fall in global crude prices, the government has decided to reverse the above decision,” said Punit Patni, equity research analyst, Swastika Investmart Ltd.
“A quicker than expected restart to reverse the windfall taxes on the sector should normalise equity multiples steadily higher,” said said Mayank Maheshwari, equity analyst at Morgan Stanley.
“While in absolute terms the windfall taxes are still high, we believe steady normalisation in local fuel availability (a key energy security concern for the government), stability in oil prices, more normalised global fuel margins, and currency stability will help further reduction in windfall taxes under fortnightly review,” he added.
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