Govt slashes windfall tax on diesel, ATF; cuts tax on domestic crude oil exports

The Centre has slashed the windfall on domestically produced crude oil and reduced the levy on diesel exports. The tax on domestic crude oil export is down from Rs 4,900 per tonne to Rs 1,700 per tonne whereas the tax on aviation turbine fuel (ATF) has been reduced to Rs 1.5 per litre from Rs 5 per litre. The revised rates are effective from December 16, as per government notification.

The Finance Ministry last revised windfall tax on crude oil output and diesel exports on December 1. As per this revision, a windfall tax on domestic crude oil production cost Rs 4,900 per tonne whereas the government slashed the rate on diesel exports from Rs 10.5 per litre to Rs 8 per litre. This levy includes Rs 1.5 per litre road infrastructure cess.

Meanwhile, Fitch Ratings expects the tax on windfall profits made by oil and energy companies to be phased out in 2023 on the back of moderating prices. It said, “We also expect oil marketing companies (OMCs) marketing margins to recover and partly recoup 2022’s losses, given our modestly lower crude-price assumptions.”

Oil marketing companies– IOC, HPCL, and BPCL logged back-to-back quarterly losses as they capped petrol and diesel prices to help the government contain inflation.

Windfall tax is calculated after deducting any price producers are getting above a threshold. Levy on fuel exports is based on margins earned by refiners on overseas shipments. India first imposed windfall profit taxes on July 1. At that time, export duties of Rs 6 per litre ($12 per barrel) each were imposed on petrol and aviation turbine fuel and Rs 13 per litre ($26 per barrel) on diesel.

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