Windfall tax on transport fuel to hit profits of oil companies

NEW DELHI: Windfall profit tax levied by the government on transport fuel is likely to impact the profit of the industry by about Rs 31,000 crore (Rs 310 billion) in financial year 222-23, according to the industry analysts.

They said the tax on local oil producers has been cut on expected lines but increasing the levy on jet fuel and diesel exports was a surprise as local markets are reasonably well-supplied. “The windfall tax, though reduced, remains negative for the upstream companies and would impact the EBITDA (earnings before interest, taxes, depreciation, and amortization) of the industry by about Rs 310 billion in FY2023.

For the downstream industry, the changes in the special additional excise duty would impact the overall GRMs (gross refining margins) of exporters by up to USD 1.5/barrel, depending on their proportion of exports and the EBITDA impact on the industry is expected to be Rs 160 billion for FY2023,” said Prashant Vasisht, vice-president and co-head of ICRA Limited. 

As the oil price in the international market cooled down, India in its third fortnightly review decided to hike the excise duty on the export of diesel by Rs 2 to Rs 7 per litre and hike by Rs 2 from nil on the export of jet fuel. However, the finance ministry cut cess on domestically produced crude to Rs 13,000 from Rs 17,750. “India’s fortnightly revision in windfall tax for oil producers was in line with our expectations.

The increase in jet fuel and diesel export tax, which reflects the recent rise in refining margins, surprised us as local markets are reasonably well supplied,” said Morgan Stanley in its report.  In July, the government in a bid to regulate fuel prices in the domestic market raised excise duty by Rs 6 per litre on aviation turbine fuel (ATF), Rs 6 per litre on petrol and Rs 13 per litre on diesel.