look news india
Amidst the fluctuations in the prices of crude oil and refined petroleum products in the international market, the Central Government has issued an official order to significantly reduce the rates of Windfall Gains Tax on fuel exports. Under the latest notification issued by the Finance Ministry and the Board of Indirect Taxes and Customs (CBIC), the Special Additional Excise Duty (SAED) i.e. windfall tax on the export of petrol has been reduced to Nil. Along with this, the tax rates applicable on foreign export of diesel and aviation turbine fuel (ATF) have also been significantly reduced. This decision of the government has become effective from Saturday, which will provide a direct opportunity to the country’s major oil refining and exporting companies to strengthen their margins in foreign markets.
What are the new tax rates of petrol, diesel and ATF?
According to the government order, the rate of Rs 3.5 per liter previously applicable on export of petrol has now been reduced to Rs 0 per litre. The tax on export of diesel has been reduced from Rs 25.5 per liter to Rs 24 per liter. At the same time, the levy applicable on export of jet fuel i.e. ATF used in airlines has been reduced from Rs 22 per liter to Rs 19.5 per liter. This fortnightly revision has been implemented after a detailed analysis of the changes in crack spreads and refining margins in the international market during the last fortnight.
What is Windfall Gains Tax and why is it imposed?
Windfall Gains Tax is basically a special tax imposed on companies that earn supernormal profits due to unexpected global circumstances, geopolitical tensions or a sudden surge in the global market. India first implemented this tax in July 2022 when the price of crude oil crossed $ 100 per barrel during the Russia-Ukraine crisis. Its main objective was to ensure that domestic refinery companies not only earn huge profits by selling fuel at high premium in foreign markets, but also maintain adequate supply of petrol and diesel within the country. The government reviews these rates every 14 days based on the average of international oil benchmarks and global margins.
Big impact on refiners like Reliance Industries and Nayara Energy
The windfall tax on petrol becoming zero and the tax cut on diesel-ATF will have the most direct and positive impact on the big private refining companies of the country. Reliance Industries Limited (RIL), which operates the world’s largest refinery in Jamnagar, Gujarat, and Nayara Energy, which operates the Vadinar refinery, export refined fuel mainly to Europe, America and Asian countries. The tax cut will improve the Gross Refining Margin (GRM) of these companies and increase their net realization on international cargo deals. Along with this, stable and transparent tax policy for public sector oil producing companies like ONGC and Oil India also strengthens business confidence.
Will the prices of petrol and diesel reduce for common consumers?
The biggest question that arises in the minds of common consumers regarding this tax cut is whether this will make fuel cheaper at domestic petrol pumps. Energy experts clearly say that this tax cut applies only to fuel exports to foreign markets and not to domestic retail sales. The retail prices of petrol and diesel in India’s domestic retail market depend on state level VAT, central excise duty and the base price of oil marketing companies (IOCL, BPCL, HPCL). However, improvement in refiners’ margins and stable international oil prices largely reduce the pressure on any potential price increase domestically, which is expected to maintain price stability in the near term.