India raises windfall tax on crude oil output

NEW DELHI: India raised windfall taxes on locally-produced crude oil and exports of diesel and aviation turbine fuel, reversing some of the relief it had given earlier this month.

The tax on crude oil produced from domestic field has been raised by 37.5 percent to $133.56 per ton effective from October 16, according to a government notification published late on Saturday. Exports of aviation fuel will again attract a levy of 3.50 Indian rupees per liter after it was scrapped on October 1.

A windfall profit tax on the export of diesel has been lifted to 12 Indian rupees a litre from 6.5 Indian rupees, it also said.

The hike reverses the reduction in two previous rounds in September. This follows the rise in international oil prices. The basket of crude oil that India imports has risen to $92.91 per barrel in October from an average of $90.71 in the previous month. The basket had averaged $116.01 in June which was used as a base to introduce the levy for the first time from July 1.

When the levy was first introduced, a windfall tax on export of petrol alongside diesel and ATF too was levied. But the tax on petrol was scrapped in subsequent fortnightly reviews.

While the windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realised and the cost.

The international price of petrol, which was used as reference for the levy of windfall tax on exports, was $148.82 per barrel in June but has since declined to $91.37 this month. It had averaged $93.78 a barrel in September.

In contrast, the international price of diesel has firmed up to $133.35 per barrel in October from $123.36 in the previous month. The rate was $170.92 per barrel in June.

International oil prices have fallen to pre-Ukraine war levels last month but have risen this month as producers cartel OPEC and its allies cut production.

While private refiners Reliance Industries Ltd and Rosneft-based Nayara Energy are the principal exporters of fuels like diesel and ATF, the windfall levy on domestic crude targets producers like state-owned ONGC and Oil India Ltd as well as private players such as Vedanta Ltd.

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 $12 per barrel each were levied on petrol and aviation turbine fuel and $26 a barrel on diesel. A $40 per barrel windfall profit tax on domestic crude production was also levied.

The duties were partially adjusted in the previous rounds on July 20, August 2, August 19, September 1, September 16, and October 1. The adjustments, while still ad hoc, highlight the producer oil price cap of around $75 per barrel and profitability of $20-22 a barrel.