Govt slaps tax on petrol, diesel and ATF exports: No impact on domestic prices

To ease the domestic fuel supply crunch the government has decided to slap an export tax on petrol, diesel and jet fuel (ATF) shipped overseas by firms like Reliance Industries. It has also imposed a windfall tax on crude oil produced locally by companies such as ONGC and Vedanta.

₹6 per litre tax will be imposed on export of petrol and ATF and ₹13 per litre tax on export of diesel, finance ministry notifications showed. It went ahead to clarify that the steps would have no impact on domestic fuel prices.

Additionally, it levied a ₹23,250 per tonne additional tax on crude oil produced domestically.

The levy on crude, which follows record earnings by state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) and private sector Cairn Oil & Gas of Vedanta Ltd, alone will fetch the government ₹67,425 crore annually on 29 million tonnes of crude oil produced domestically.

The notification clarified, 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 Rs. 23250 per tonne has been imposed on crude. Import of crude would not be subject to this cess.

The export tax follows oil refiners particularly Reliance Industries and Rosneft-backed Nayara Energy making a killing in exporting fuel to deficit regions such as Europe and the US in the aftermath of Russia's invasion of Ukraine. The refiners are said to have processed Russian crude oil available at a discount after it was shunned by the west, and exported fuel produced from it to Europe and the US.

The restriction on export is also aimed at shoring up domestic supplies at petrol pumps, some of which had dried up in states like Madhya Pradesh, Rajasthan and Gujarat as private refiners preferred exporting fuel than selling locally. Exports were preferred as retail petrol and diesel prices by dominant PSU retailers have been capped at rates way lower than cost.

This meant that private retailers, who control less than 10 per cent of the market share, either sell fuel at loss or lose market share if they were to sell at higher cost.