Windfall tax revision: Levy on crude cut, diesel sees hike

The windfall tax on diesel, however, was hiked to Rs 7 a litre from Rs 5 a litre, and tax on export of aviation turbine fuel (ATF) was retained at Rs 2 a litre after being scrapped in the second review earlier this month, as per a Finance Ministry notification.

Export of petrol will continue to attract nil tax. The changes will be effective Friday.

This is the third review undertaken by the Finance Ministry after imposing the levies on fuel initially on July 1.

With an aim to address the issue of fuel shortage in the country, the government on July 1 had imposed a special additional excise duty on export of petrol and diesel. Cesses equal to Rs 6 per litre on petrol and Rs 13 per litre on diesel were imposed on their exports. The Centre also imposed a cess of Rs 23,250 per tonne (by way of special additional excise duty) or windfall tax on domestic crude being sold to domestic refineries at international parity prices.

In the first review conducted on July 20, the government cut the cesses and levies on diesel and aviation turbine fuel and removed the cess on exports of petrol. The Rs 6 a litre export duty on petrol was scrapped, the tax on the export of diesel and ATF was cut by Rs 2 per litre each to Rs 11 and Rs 4, respectively. The tax on domestically produced crude was also cut to Rs 17,000 per tonne. The ministry is undertaking a review every 15 days for the windfall tax on fuel.

On August 2, as part of the second review, the export tax on diesel was cut to Rs 5 a litre and that on ATF scrapped, following a drop in refinery cracks or margins. But the levy on domestically produced crude oil was raised to Rs 17,750 per tonne in line with a marginal increase in international crude prices.

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Starting June, fuel pumps across the country have been reporting fuel shortages, leading to their closure. The situation of fuel shortage at pumps peaked during the middle of June, resulting in the government issuing a statement on the matter. The statement assured of enough fuel available in the country and asked oil marketing companies to ensure their fuel pumps remain open.

Global crude prices had risen and domestic crude producers were making windfall gains. Private oil marketing companies were exporting petrol and diesel to foreign countries like Australia for better realisation. The shortage of fuel at retail outlets was because oil marketing companies were not willing to sell fuel at a loss since fuel prices have not increased despite rising crude and depreciating rupee – these two factors had led to oil marketing companies losing Rs 20-25 per litre on diesel and Rs 10-15 per litre on petrol.