India imposes unexpected tax on oil producers and fuel exporters

Oil tankers park in a yard outside a fuel depot on the outskirts of Kolkata, February 3, 2015. REUTERS/Rupak D. Choudhury

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  • India imposes a windfall gain tax of Rs 23,250/ton on oil producers
  • An export tax of Rs 6/liter is imposed on gasoline and jet fuel
  • Imposition of an export tax of Rs 13/liter on gas oil
  • Fuel exporters have to sell some quantities in the local market

NEW DELHI (Reuters) – India has imposed an unexpected tax on oil producers and refiners who have boosted product exports to take advantage of rising profit margins abroad as the government seeks to increase the domestic supply of fuel to meet rising demand and raise federal revenue.

New taxes along with export restrictions will curb fuel exports by refiners Reliance Industries (RELI.NS) and Nayara Energy, which is partly owned by Russia’s Rosneft (ROSN.MM), and could further tighten global oil product supplies and support prices.

Their shares fell, along with those of oil producers Oil & Natural Gas Corp. (ONGC.NS) and Oil India Ltd. and Vedanta Limited (VDAN.NS) as taxes will reduce their profits.

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Private refiners Reliance and Nayara were among India’s biggest buyers this year of discounted Russian supplies and made big profits by cutting domestic sales and aggressively boosting fuel exports, including for buyers in Europe, where many buyers are avoiding imports of Russian crude. Read more

In turn, state refineries have ramped up operations to meet rising domestic demand and sell fuel at low prices set by the government. Some government refineries have also issued tenders to import fuel.

Shares of Reliance fell as much as 8.9 percent to 2,365 rupees per share, the largest intraday percentage drop since November 2020, while Mangalore Refining and Petrochemical Co. fell 10 percent to 81.55 rupees.

State rivals Indian Oil Corp (IOC.NS), Hindustan Petroleum (HPCL.NS) and Bharat Petroleum (BPCL.NS) all rose after the announcement of export restrictions and taxes of Rs 6 per liter for gasoline, jet fuel and jet fuel. 13 rupees per liter for gas oil.

“While crude oil prices have risen sharply in recent months, diesel and gasoline prices have shown a sharp increase. Refineries export these products at internationally prevailing prices, which are very high,” the government said in a statement.

“While exports have become very profitable, it has been observed that some refineries are drying their pumps in the local market.”

New restrictions require oil companies exporting gasoline to sell to the domestic market the equivalent of 50% of the quantity sold abroad for the fiscal year ending March 31, 2023.

For diesel, they have to sell to domestic buyers the equivalent of at least 30% of the quantity they are exporting.

Vedanta shares fell as much as 7.6% to their lowest levels since March 2021 and ONGC shares fell 14.2%, the worst intraday percentage drop since March 2020.

Government orders said the new export restrictions would not apply to export-focused units such as the 704,000 bpd Reliance refinery in Jamnagar, western Gujarat, and to supplies to Bhutan and Nepal.

Refinitiv Eikon data showed that refining or cracking profit margins for 10ppm gas oil jumped to $54.93 a barrel compared to Dubai crude on Friday. Jet fuel margins rose $6.72 to $47.22 a barrel over Dubai crude, while gasoline cracks in the region rose to $28.75 a barrel.

“Crude prices have risen sharply in recent months. As a result, domestic crude producers have made windfall gains,” the government statement said, justifying the imposition of a tax of 23,250 Indian rupees ($294.04) per ton on domestic crude sales.

The new windfall tax will not apply to additional barrels produced by companies this fiscal year and to small explorers who produced less than two million barrels in the last fiscal year until March 31, 2022.

(1 dollar = 79.0700 Indian rupees)

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Additional reporting by Aftab Ahmed, Sitherman NR and Mohi Narayan; Editing by Robert Percell and Emilia Sithole Mataris

Our Standards: Thomson Reuters Trust Principles.

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