On Wednesday, the government reduced the windfall tax on domestically produced crude, diesel, and aviation turbine fuel eliminated the levy on gasoline and exempted fuel exports from special economic zones (SEZ) from it.
The development follows a drop in international oil prices, which is expected to benefit energy companies. The duty on fuel sold in the retail market has not changed.
The decision, announced late Tuesday night by the Union Finance Ministry, comes less than three weeks after the government imposed the windfall tax.
According to the notification, the ministry was amending its June 30 decision to levy the taxes after “being satisfied” that it was “necessary in the public interest.”
Windfall tax on crude has been reduced from 23,250 per tonne to 17,000 per tonne, diesel from 13 per litre to 11, and ATF from 6 per litre to 4 effective Wednesday, according to the notification. The 6 per litre levy on petrol has been completely removed, and fuel products from SEZ refineries are exempt from such levies.
According to two people familiar with the situation who spoke on the condition of anonymity, the changes were made in response to oil refiners’ requests for immediate exemptions as international fuel prices plummeted.
While India’s average crude oil import price fell 9.08 % from $116.01 per barrel in June to $105.47 per barrel (up to July 20), benchmark petrol fell 19.17 % (from $148.82 per barrel in June to $120.29 until July 20) and diesel fell 15.52 % (from $170.92 per barrel in June to $144.38 a barrel until July 20).
Following the announcement of the reduction in windfall taxes, share prices of beneficiaries such as Reliance Industries (RIL; up 2.47 % on Wednesday’s close), Oil and Natural Gas Corporation (ONGC; 4 %), and Vedanta increased by 6.22 %. On Wednesday, the 30-stock BSE Sensex closed 1.15 % higher at 55,397.53.
“The tax is completely withdrawn for exports of petrol because most of the private petrol pumps are now selling the fuel domestically after a significant drop in its rate in the international market,” one of the two people mentioned above said.
The government imposed a windfall tax on oil refiners and producers’ exports on July 1, with the goal of increasing local supplies and increasing revenue. Officials stated at the time that even overseas supplies from SEZs would be subject to the windfall tax.
The tax was imposed after the companies were seen to be making “abnormal” profits as oil prices rose in global markets due to geopolitical turmoil, according to the union finance ministry.
On May 27, HT reported for the first time that India was considering a windfall tax on petroleum products, on both state-owned and private companies, to offset ballooning public expenditure on fuel, food, and fertiliser subsidies amid skyrocketing inflation.