Centre imposes windfall tax on crude, hikes duty on gold

Govt moves to restrict gold imports, curb fuel shortages, stem slide in the rupee

Rajeev Jayaswal

NEW DELHI: The government imposed a windfall tax on exports by oil refiners and producers, announcing levies of ₹6 per litre on every litre of petrol, ₹13 on every litre of diesel, and ₹23,250 on every tonne of domestically produced crude oil in a decision aimed at increasing local supplies and boosting its revenues.

The tax was imposed after the companies were seen to be making “abnormal” profits since oil prices have shot up in global markets due to geopolitical turmoil, the Union finance ministry said.

The customs duty on gold too has been hiked from 10.75% to 15% because of a significant spurt in imports. According to official data, gold imports jumped by over 789% on an annualised basis at $6.03 billion in May this year, which is a major drag on the foreign exchange reserve.

The new levies—windfall tax on petroleum sector, and customs duty hike on gold—are effective from July 1 and the government will review exports and imports of these items every fortnight to amend its decisions, if required, the ministry said.

HT on May 27 reported that India was considering a windfall tax on petroleum products, state-owned as well as private, to offset the ballooning public expenditure on fuel, food and fertiliser subsidies amid skyrocketing inflation.

The rupee has also plummeted to lifetime lows in recent weeks, falling to 79.12 per US dollar, before it clawed back some of its value on Friday to close at 78.94 to the USD. The drop in its value both reflects and leads to India’s ballooning import bill and current account deficit.

On the sidelines of an event marking the fifth anniversary of the goods and services tax (GST) regime, Union finance minister Nirmala Sitharaman justified the windfall tax on profits made by energy firms on the sale of domestically produced crude and exports of petrol, diesel, and ATF. “Extraordinary times require such measures,” she said.

Sitharaman said the government is happy that India is a refining hub in the region and refiners are exporting petrocrude. leum products to make profits. “We are happy that exports are giving them that kind of returns on investment. But these are extraordinary times, these are times when oil prices internationally are unbridled.., and for any country like India, which depends largely on imports, we also need to pay that kind of money to get imports [to meet domestic requirements],” she said.

India, world’s third largest consumer of crude oil after the US and China, imports over 85% of crude oil it processes and pays in dollar.

She said the decision was taken after private refiners curtailed or stopped domestic supply of transportation fuels and resorted to exports to make profits. This led to an increased demand load on pumps of staterun oil marketing companies while private firms made huge profits by selling abroad.

With the news, the share prices of both public and private energy firms tumbled. State-run Oil and Natural Gas Corp. (ONGC) plunged 13.4% to ₹131.15, while shares of Reliance Industries Ltd (RIL) fell 7.14% to ₹2,408.95 on Friday close.

According to a finance ministry official, the windfall tax (which is in the form of a cess of ₹23,250 per tonne) on domestically produced crude, will not impact small producers. Companies producing less than 2 million barrels annual crude output have been exempted from this levy, he said.

“The taxes in the form of cess and SAED [special additional excise duty] will have no impact on domestically consumed petrol, diesel and ATF prices,” he added.

“The domestic crude producers sell crude to domestic refineries at international parity prices. As a result, the domestic crude producers are making windfall gains. Taking this into account, a cess of ₹23,250 per tonne has been imposed on Import of crude would not be subject to this cess,” he said.

This cess will have no adverse impact, whatsoever, on domestic petroleum products/ fuel prices, he added.

“Also, to incentivise an additional production over preceding year, no cess will be imposed on such quantity of crude that is produced in excess of last year production by a crude oil producer,” he said.

Besides levies, some export curbs have also been imposed on petroleum products. “Export policy condition has been imposed by the government that the exporters would be required to declare at the time of exports that 50% of the quantity mentioned in the shipping bill has been/will be supplied in the domestic market during the current financial year,” he said.

Experts said the move is logical at the current situation when there are supply shortages of fuels in many countries. “The Government considering the macroeconomics surrounding petroleum products, has levied export duty on the said products and rationalised the import duties thereof. This change in import - export duties is expected to help with the recent uptick in demand-supply gap for such products,” Abhishek Jain, partner, Indirect Tax, KPMG in India said.

On the increase of customs duty on gold, he said: “This change will slightly reduce the outflow on account of gold imports and help provide stability to the INR to USD ratio.”