Shares of oil and gas companies crashed up to 15% in intraday trade on Monday after the government announced a hike in taxes on the export of petrol, diesel, and aviation turbine fuel (ATF). The Centre has levied a special additional excise duty of ₹6 per litre on exports of petrol and ₹13 per litre on exports of diesel to ease pressure on the current account deficit in the backdrop of the rising imports bill. The government, however, has said there would be no impact of export tax on domestic fuel prices.

Reacting to the news, the BSE oil and gas index tumbled 3.3%, led by the index heavyweight Oil India, which fell as much as 15.5% to ₹213 apiece during the session so far. It was followed by Oil and Natural Gas Corporation (ONGC), which dropped 13.9% to hit a low of ₹130.4.

Reliance Industries, the country’s most valued firm, nosedived 8.65% to touch an intraday low of ₹2,369.45 on the BSE, registering its biggest single-day decline in the last 18 months.

Among others, state-owned GAIL (India) and Indian Oil Corporation (IOC) fell up to 3%. Other small players such as Mangalore Refinery & Petrochemicals (MRPL) and Chennai Petroleum Corporation Limited (CPCL) tumbled in the range of 6% to 10%.

In comparision, the BSE Sensex was trading 340 points lower at 52,679 levels, with 11 of 30 shares flashing in red, led by Reliance Industries (RIL).

The government also announced a special additional excise duty of ₹6 per litre on exports of aviation turbine fuel (ATF), a specialised byproduct of crude or petroleum used to power aircraft. Following the announcement, shares of aviation stocks were trading mixed, with Interglobe Aviation (IndiGo) and SpiceJet rising nearly 3%, while Jet Airways fell over 2%.

As per the notification issued by the government today, a cess of ₹23,250 per tonne by way of special additional excise duty (SAED) has been imposed on crude. “Crude prices have risen sharply in recent months. The domestic crude producers sell crude to domestic refineries at international parity prices. As a result, the domestic crude producers are making windfall gains. Taking this into account, a cess of ₹23,250 per tonne has been imposed on crude. Import of crude oil would not be subject to this cess,” ministry of finance said in a release.

The ministry further stated that crude is sold by the domestic producer at an international parity price and the cess will have no adverse impact, whatsoever, on domestic petroleum products/fuel prices. Further, small producers, whose annual production of crude in the preceding financial year is less than 2 million barrels, will be exempt from this cess. Also, to incentivise an additional production over the preceding year, no cess will be imposed on such quantity of crude that is produced in excess of last year's production by a crude producer.

Explaining the export cess on petrol and diesel, the ministry of finance said, “While crude prices have increased sharply in recent months, the prices of high-speed diesel and petrol have shown a sharper increase. The refiners export these products at globally prevailing prices, which are very high. As exports are becoming highly remunerative, it has been seen that certain refiners are drying out their pumps in the domestic market.”

“In view of this, cesses equal to ₹6 per litre on petrol and ₹13 per litre on diesel have been imposed on their exports,” the ministry added. With the same reasoning, cess on ATF too has been imposed.

In order to ensure domestic fuel supply amid the global supply disruptions, the DGFT too has imposed export policy conditions requiring exporters to declare at the time of exports that 50% of the quantity mentioned in the shipping bill has been/will be supplied in the domestic market during the current financial year.

On Friday, the Brent oil for August delivery was trading 1.05% higher at $110.18 per barrel, while the U.S. West Texas Intermediate (WTI) crude August futures were quoting at $106.6 a barrel, up 0.7%. The crude price retreated 6% from its all-time high of $125.1 a barrel touched on June 14, 2022, amid a weak demand outlook due to fresh Covid-19 cases in China and recession fear.

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