The government has cut the windfall profit tax on domestically produced crude oil to nil and has cut the levy on exports of diesel to 50 paise per litre, according to an official order by the Ministry of Finance.
The levy on crude oil produced by companies such as Oil and Natural Gas Corp., has been reduced to nil from Rs 3,500 per tonne, the order dated April 3 said.
The government reduced the tax on exports of diesel to 50 paise per litre from Rs 1 per litre. The tax on overseas shipments of aviation turbine fuel stays at nil. The new tax rates come into effect from Tuesday, the order said.
The order holds significance in the light of the recent cut in crude oil production of 1.16 million barrels per day by Organisation of Petroleum Exporting Countries and their allies that has led to jump in crude prices globally.
Sabri Hazarika, senior analyst with Emkay Global Financial Research said, the review is based on prices in the preceding fortnight, during which time crude prices averaged $75-76/bbl. As a result, realizations have come to a level where the windfall rate was reduced to nil.
“But with recent crude-uptick to $85/bbl, in next fortnight review, the rates will again be imposed. Overall the windfall statute seems to be continuing, except when hurdle rate is hit, it is made nil. In transport fuel margins also it's the same case," Hazarika said.
Crude oil that is pumped out of the ground and from below the seabed by companies like Oil and Natural Gas Corp., OIL India Ltd., and Cairn Oil & Gas, is refined and converted into fuels like petrol, diesel, and aviation turbine fuel by state and private refiners like BPCL, IOC, HPCL and RIL.
The tax rates are reviewed every fortnight based on the average oil prices. India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that taxed the supernormal profits of energy companies. At that time, export duties of Rs 6 per litre ($12 per barrel) each were levied on petrol and ATF and Rs 13 per litre ($26 per barrel) on diesel.
A windfall profit tax of Rs 23,250 per tonne ($40 per barrel) on domestic crude production was also levied. The export tax on petrol was scrapped in the very first review, and that on ATF was done away with in the last review on March 4.
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