The tax increase is expected to reduce the profits of Indian crude producers and major oil exporters like Reliance Industries Limited and Oil and Natural Gas Corporation Ltd. (ONGC). However, this may necessarily not hamper their credit quality. "But we do not expect the rise in tax payments to materially weaken the companies' credit quality because their margins will continue to be healthy. High crude oil prices will support the earnings of oil producers," says Moody's note.

RIL is the largest exporter of petroleum products from India. In the fiscal year ended March 2022, Reliance Industries generated about 41% of consolidated EBITDA from its oil-to-chemicals business. "The increase in taxes on crude oil production will reduce ONGC's margins, but this is mitigated by current high oil prices and the company's low cost of production."

However, profits generated from oil exports will fall because of windfall taxes, it says, adding that they will likely remain "higher than the levels over April 2020 to March 2022 if refining margins are sustained at the highs seen in April to June this year".

But, the additional tax revenue will offset fiscal pressure on the government. Moody's thinks this is a temporary measure by the Centre and that taxes will be eventually adjusted according to market conditions like inflation, external balances and currency depreciation.

These measures are expected to help offset the negative impact of a reduction in excise duties on petroleum and diesel, which were announced by the Centre in late May. The Centre on May 21 reduced the central excise duty on petrol by ₹8 per litre and diesel by ₹6 per litre, thereby having a revenue implication of around ₹1 lakh crore/year for the government.

India's higher export duties for fuel products will curtail export receipts, but the concurrent announcement of higher customs duties on gold imports will serve to limit a further widening of the current account deficit, the report adds. The Centre had hiked import duty on gold to 15% from 10.75% to ease pressure on the current account deficit due to surging gold imports.

windfall gain tax

Govt to earn ₹95,129 cr from windfall gain taxes on fuel: Moody’s