NEW DELHI: The government has slashed the windfall profit tax levied on domestically-produced crude oil as well as on the export of diesel and ATF following a decline in global 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 steeply to Rs 1,700 per tonne from Rs 4,900, the order dated December 15 said.
Crude oil pumped out of the ground and from below the seabed is refined and converted into fuel like petrol, diesel and aviation turbine fuel (ATF).
The government has also cut the tax on the export of diesel to Rs 5 per litre from Rs 8 and the same on overseas shipments of ATF to Rs 1.5 a litre from Rs 5.
The new tax rates are effective from December 16.
The reduction in tax rates follows a 14 per cent slump in global crude oil prices since November.
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 (USD 12 per barrel) each were levied on petrol and ATF and Rs 13 a litre (USD 26 a barrel) on diesel.
A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied.
The export tax on petrol has since been scrapped.
The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
"India's fortnightly windfall tax revision on oil producers was on expected lines," Morgan Stanley said commenting on the move.
Windfall tax on domestic oil production declined from about USD 8.3 per barrel to USD 2.8.
"The adjustment, while still ad hoc, highlighted the cap on the producer oil price at around USD 75 per barrel and on profitability at USD 20-26 per barrel," it said.
The export tax on diesel has been reduced from USD 15.7 per barrel to USD 9.6 and jet fuel saw a decline from USD 9.6 a barrel to USD 2.9.
Reliance Industries Ltd, which operates India's largest only-for-export oil refinery at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.
"RIL's gross refining margin under the new tax regime is now USD 15.
1 per barrel (as 30 per cent of refinery output is subject to this tax), and increased with lower crude loss, crude discount, petcoke gasifier benefit and decline in export taxes," Morgan Stanley said.
The implied diesel and jet fuel cracks, adjusted for the windfall tax, average USD 15 per barrel and USD 26 a barrel, respectively.
"We remain bullish (on) the refining cycle and see upside risks to regional margins despite investor concerns around China exports as global inventories continue to unwind," it added.
The basket of crude oil that India imports averaged USD 77.88 per barrel in December as against USD 87.55 last month.
It averaged USD 91.70 per barrel in October.
Similarly, the price of diesel has also come down to USD 105.70 per barrel this month from USD 123.18 in November and USD 133.52 in October.
The government levies tax on windfall profits made by oil producers on any price they get above a threshold of USD 75-76 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.