The windfall taxes imposed in July on domestic crude and export of petroleum products will likely generate additional revenues of around Rs 40,000 crore in the current fiscal, a senior official told FE, adding that nearly half of these taxes will likely be paid by private sector companies.
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If global crude oil prices decline to $70-75/bbl, then the windfall taxes will be scrapped, the official said, but added that unless this price range is established, the levies may continue subject to fortnight adjustments.
These one-off levies meant to extract a share for the government from the “windfall profits” made by oil sector firms due to elevated global crude prices have undergone seven fortnightly revisions since. While the tax on export of petrol was removed in the first revision, it was also clarified that no tax will be applicable on exports from special economic zones (SEZs), a move that gave some relief to Reliance Industries (RIL). However, RIL still took a hit from the tax and reported a flat year-on-year growth in net profit in the September quarter at `13,656 crore, which was also down 24% sequentially.
In the seventh review on October 15, the government raised the windfall tax on domestically-produced crude oil to `11,000 from `8,000 per tonne, and the levy on the export of diesel to `12 from `5 per litre, citing a rise in global crude prices in the last fortnight. It also reintroduced a levy of `3.5/litre on the export of jet fuel, which was removed in the previous fortnightly review.
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“There is no separate data yet as to how much has been collected so far through the special levies as these are subsumed in excise duty receipts. But, additional tax revenues could be in the range of `30,000-40,000 crore in the current fiscal,” the official said. The extra receipts would offset partly the Centre’s revenue loss of an estimated `85,000 crore in FY23 from the excise duty cuts on petrol and diesel in May.
The rates of the levies are being changed depending on crude prices and the refining spread. While private refiners RIL and Rosneft-based Nayara Energy are the principal exporters of diesel and ATF, the windfall levy on domestic crude targets producers like state-owned ONGC and OIL, and Vedanta-controlled Cairn.
India has a total refining capacity of 249 million tonne per annum (MTPA), the second-largest in Asia. RIL has a 68 MTPA capacity, including 33 MTPA in the domestic tariff area, which is covered by the windfall tax levies. Nayara has an annual capacity of 20 MTPA. Private refineries are more export-oriented than state-run refiners.
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About 71.15% of crude oil is by state-run ONGC and OIL while private firm Cairn has a share of about 24%.
The Indian basket of crude oil prices averaged a record $116/bbl in June 2022 before moderating to $90.7/bbl in September. But it has increased to $91.7/bbl so far in October 2022, much higher than $73/bbl in December 2021.
While petroleum products exports rose 7% on year in H1FY23 to 32 million tonne, the earnings from the sales rose 88% to $34 billion, reflecting the elevated prices sustaining after the Ukraine war broke out in February 2022. Despite the slowdown in the world economy, crude prices are sustaining at a high level as the Organization of the Petroleum Exporting Countries has decided to cut production.
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The government’s rationale for introducing these taxes is to lay its hands on a chunk of the “windfall profits” reaped by some of the domestic firms, on the back of elevated global oil prices. The move is also aimed at addressing the crunch in the domestic fuel market, as private refiners neglected supplies to domestic retail outlets while tapping the highly remunerative export markets.
