The government has significantly reduced the windfall tax or the special additional excise duty (SAED) on domestically produced crude oil, aviation turbine fuel (ATF) and export duty on diesel with effect from Friday, December 16.
Following the fortnightly review, the windfall tax on crude produced by firms such as state-owned Oil and Natural Gas Corporation (ONGC) has been cut to Rs 1,700 from Rs 4,900 per tonne and that on jet fuel has been brought down to Rs 1.50 from Rs 5 per litre. The duty on export of diesel has been reduced to Rs 5 from Rs 8 per litre earlier while the levy on petroleum remains nil.
At this level, the levies are close to bottoming out if Brent crude and diesel cracks continue to soften.
The windfall tax or SAED is a one-off tax imposed by a government on a company or industry when it benefits from something that it is not responsible for, the financial gain that ensues is called windfall profits.
The decision to
bring down the windfall tax comes alongside declining crude prices, which have fallen to around $76 a barrel. If one compares the two week average — that's what is taken into account for the calculation of windfall taxes — overall, the journey is southwards.
Earlier this week, brokerage firm Jefferies said it sees the possibility that export duties on diesel and aviation fuel could be withdrawn in the near future while IIFL too on Thursday said, if oil prices continue to remain at current levels, there was a chance that windfall taxes would be lowered.
Market expert Deven Choksey of KRChoksey is of the view that with the correction in crude oil prices, the amount of money which could otherwise be collected by way of windfall tax is probably not being collected. Therfore, at the current, it is a non-tax as far as the oil producing companies are concerned. From that perspective, a superlative profit and superlative tax both have gone, he said.
"Going forward, if crude oil taxes stay in the stability region of around $80 to $90 per barrel, then possibly, most of these companies will have better tax. As of now, as it stands, in the refining segment, the cracks are on the positive side and that should result into relatively better performance for most companies, including Reliance Industries," he told CNBC-TV18.
India first imposed windfall profit taxes on July 1, joining several countries 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 (USD 12 per barrel) were levied on petrol and ATF and Rs 13 a litre (USD 26 a barrel) on diesel at first and have been revised several times.
While windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realised and the cost.
On Friday morning, Brent crude futures rose 36 cents or 0.4 percent to $81.57 per barrel by 6:39 am. West Texas Intermediate futures rose 25 cents, or 0.3 percent, to $76.36 per barrel.
First Published: Dec 16, 2022 8:17 AM IST
