Modi govt cuts windfall tax on petrol, diesel, jet fuel, crude oil

Following a decline in international rates, the Centre has slashed the windfall tax on petrol, diesel, jet fuel and crude oil. It has scrapped the Rs 6 a litre tax on the export of petrol and reduced the same on Aviation Turbine Fuel from Rs 6 a litre to Rs 4. Besides, the tax on diesel has been reduced from Rs 13 per litre to Rs 11 per litre. 

Finance Ministry notifications further that additional tax on domestic crude oil has been cut from Rs 23,250 per tonne to Rs 17,000 per tonne.

India imposed the windfall tax on oil producers and refiners on July 1, enabling product exports to gain from higher overseas margins. However, the energy companies' profit margins have eroded, considering the fall in international fuel prices. 

Global crude prices have dipped since mid-June over concerns over the possibility of a global recession. In recent weeks, returns from processing diesel and gasoline in Asia have also slumped.

When the taxes were introduced, the government had anticipated that it would generate additional revenue of over Rs 1 lakh crore in 2022. Out of this revenue of Rs 65,600 crore was expected to be realised through the windfall tax on crude production alone. 

Post windfall tax, aviation fuel (ATF) and crude realisation slumped to below 15-year averages while the realised spread on petrol and diesel reached near loss-making levels.

After considering $12 per barrel windfall tax, the realised spread on petrol was near a loss-making level of just $2 per barrel. Similarly, considering the $26 per barrel export tax, the diesel spread too was a meagre sum.

The windfall tax reduction will come as a shot in the arm for Reliance Industries Limited, which operates two oil refineries at Jamnagar in Gujarat, with one focused only on exports. The cut in the tax on domestic oil producers would benefit Oil and Natural Gas Corporation and Vedanta Limited.