Windfall tax on crude oil, export of diesel and ATF cut

The government has cut windfall profit tax on export of diesel and ATF to their lowest while also reducing the levy on domestically-produced crude in line with softening international oil prices, according to an official order.

The levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been cut to Rs 4,350 per tonne from Rs 5,050 per tonne, the order dated February 15 said.

Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels like petrol, diesel and aviation turbine fuel (ATF).

The government has also cut the tax on export of diesel to Rs 2.5 per litre from Rs 7.5, and the same on overseas shipments of ATF to Rs 1.50 a litre from Rs 6 a litre.

The new tax rates come into effect from February 16.

The reduction follows an increase in the levy effected earlier this month.

The export levy on diesel is the lowest since the tax was introduced in July last year.

The rate on export of jet fuel (ATF) equals the lowest rate hit in second half of December.

The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies.

At that time, export duties of Rs 6 per litre ($12 per barrel) each were levied on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel.

A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied.

The export tax on petrol was scrapped in the very first review.

Reliance Industries Ltd, which operates the world's largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.

The government levies tax on windfall profits made by oil producers on any price they get above a threshold of $75 per barrel.

The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments.

These margins are primarily a difference between the international oil price realised and the cost.