Centre cuts windfall tax on crude oil to ₹3,500/tonne; export duty on diesel hiked

The government on Monday slashed the windfall tax on domestically produced crude oil to ₹3,500 per litre from ₹4,400 per litre. According to a notification by the Ministry of Petroleum and Natural Gas, the export duty on diesel has been hiked to ₹1 per litre from ₹0.50 per litre. However, the export duty on petrol and aviation turbine fuel (ATF) has been exempted.  The new rates are applicable with effect from March 21, 2023.

Following this development, shares of three state run oil retailers— Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL)— were trading lower on Tuesday. Shares of Oil & Natural Gas Limited (ONGC), the country’s largest oil and gas producer, declined 0.43% at ₹151.50 apiece on the Bombay Stock Exchange, while Bharat Petroleum Corporation Ltd (BPCL) stock declined 0.68% to ₹357.10. The share price of Indian Oil Corporation Ltd was trading lower by 1.42% at ₹79.52, whereas shares of Hindustan Petroleum Corporation Ltd (HPCL) declined by 1.98% to ₹242.65. However, the share price of Reliance Industries surged 2.83% to ₹2,264. In contrast, the NSE Nifty Energy Index surged 0.76% to 22,757.90.

On Tuesday, amid the global banking turmoil that has rattled global economies and shaken investors’ sentiments, crude oil was trading lower in the international market. Brent Crude futures for May settlement declined 1% or 71 cents to trade at $73.08 per barrel at 0514 GMT whereas US West Texas Intermediate (WTI) crude futures dropped by 74 cents or 1.1% to $66.90 per barrel.

The government initially imposed the windfall tax on exports of crude oil, diesel and aviation fuel in July 2022 after private refiners preferred overseas markets to gain from high refining margins, instead of selling at lower-than-market rates in the country. The tax rates are revised every fortnight based on prevailing international rates. Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) together control around 90% of the fuel retailing network in the country.

The government had earlier said the prices of petrol and diesel have not been increased by public sector oil marketing companies (OMCs) since April 6, 2022, despite record-high international prices. As a result, the three state-run fuel retailers — Indian Oil Corporation, BPCL and HPCL — booked a combined loss of ₹27,276 crore in the first six months of the ongoing financial year, against the combined profit before tax of ₹28,360 crore in the first half of the financial year 2021-22.

Rating agency Moody's in January this year said that the country’s windfall tax on exports of locally-produced oil has helped reduce the state-owned refining and marketing companies' marketing losses.

 "The three companies have been able to secure a discount of an amount equal to the export duties on their purchases from private-sector refiners, which lowered the cost of buying the fuels. HPCL has benefited the most from these discounts because it has the highest proportion of external purchases among the three companies," the rating agency said.