Govt reintroduces windfall tax on crude oil; scraps duty on diesel exports

In a bid to rationalise the tax structure in the petroleum sector, the government on Wednesday reintroduced the windfall tax or special additional excise duty (SAED) on domestically produced crude oil from nil to ₹6,400 per tonne. The Centre also scrapped the duty on the export of diesel from ₹0.50 per litre to nil. The windfall tax on petrol and aviation turbine fuel (ATF) has, however, remained unchanged. The new rates are applicable with effect from April 19, 2023.

Following the 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 higher on Wednesday. Shares of Oil & Natural Gas Limited (ONGC), the country’s largest oil and gas producer, declined 0.16% at ₹159.85 apiece on the Bombay Stock Exchange, the share price of Reliance Industries surged 0.6% to hit an intraday high of ₹2,355 apiece on the BSE. Bharat Petroleum Corporation Ltd (BPCL) stock surged 0.6% to hit an intraday high of ₹336.55. The share price of Indian Oil Corporation Ltd was trading higher by 0.54% at ₹78.49, whereas shares of Hindustan Petroleum Corporation Ltd (HPCL) were trading higher by 1.95% to ₹233. The NSE Nifty Oil & Gas Index surged 0.11 % to 7,336.90, whereas the NSE Nifty Energy Index declined 0.02% to 23,206.75.

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.

On Wednesday, amidst the anticipation of a potential rate hike by the US Federal Reserve and strong Chinese economic data, the Brent crude futures declined 7 cents to $84.70 per barrel at 0320 GMT, whereas the West Texas Intermediate US crude was trading lower by 5 cents to $80.81 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. IOCL, BPCL and HPCL together control around 90% of the fuel retailing network in India.