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Explained: Why has the Govt imposed a special cess on exports of automobile fuels?

The Govt says the domestic retail prices of diesel and petrol would remain unchanged. At the same time these measures will ensure domestic availability of the petroleum products.

Written by Aanchal Magazine , Mihir Mishra | New Delhi |
Updated: July 2, 2022 9:26:18 am
An employee of a Bharat petroleum fuel station fills petrol in a vehicle in Mumbai on June 11, 2022. (AP Photo/Rajanish kakade)

In a series of measures to regulate the import and export of items such as crude oil and gold, the government has imposed special additional excise duty/ cesses on exports of petrol and diesel of Rs 6 per litre and Rs 13 per litre respectively.

The import duty on gold has been hiked to 15 per cent from 10.75 per cent to curb imports of gold amid concerns over increasing pressure on the current account deficit.

A cess of Rs 23,250 per tonne (by way of special additional excise duty or SAED) or windfall tax, has been imposed on crude. A SAED of Rs 6 per litre has also been imposed on exports of aviation turbine fuel (ATF) or jet fuel.

What are the petroleum duty changes?

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In a bid to regulate domestic crude oil producers from importing crude and then selling it at international parity prices, a windfall tax has been imposed.

“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 Rs 23,250 per tonne has been imposed on crude. Import of crude would not be subject to this cess,” the government said in an official release.

“The refiners export these products at globally prevailing prices, which are very high. As exports are becoming highly remunerative, it has been seen that certain refiners are drying out their pumps in the domestic market,” it said.

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The cesses of Rs 6 per litre on petrol and Rs 13 per litre on diesel have been imposed to disincentivise their exports.

Also, the Directorate General of Foreign Trade (DGFT) has imposed an export policy condition that exporters would be required to declare at the time of export that 50% of the quantity mentioned in the shipping bill has been/ will be supplied in the domestic market during the current fiscal.

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“These measures would not have any adverse impact on domestic retail prices of diesel and petrol. Thus, domestic retail prices would remain unchanged. At the same time these measures will ensure domestic availability of the petroleum products,” the release said.

Why the duty changes on petroleum?

For much of June, several cities across the country witnessed petrol pumps rationing supplies or shutting due to non-availability of fuel, leading to concerns about shortages and triggering panic buying among some consumers.

The situation peaked around the middle of the month, and the government intervened by asking pumps to stay open and directing oil marketing companies (OMCs) to ensure the availability of fuel. The Ministry of Petroleum and Natural Gas also assured there was enough fuel in the country.

As global crude prices increased and the value of the rupee fell simultaneously, OMCs such as state-owned IOCL, HPCL, and BPCL, and private companies Rosneft-backed Nayara Energy and Reliance Industries, started to report losses on retail sales.

As the losses mounted, downstream oil companies tried to reduce supply to petrol pump vendors, which resulted in fuel shortage at pumps in multiple states. In a statement issued on June 15, the government acknowledged the problem — and said that shortages had been noticed in Rajasthan, Madhya Pradesh, and Karnataka.

What about the changes in gold import duty?

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There has been a sudden surge in the imports of gold. In May, a total of 107 tonnes of gold was imported, and imports were significant in June as well, a Finance Ministry release said. The surge in gold imports is putting pressure on the CAD. To curb import of gold, customs duty has been increased from present 10.75% to 15%.

Earlier, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent. Along with agriculture infrastructure development cess (AIDC) of 2.5 per cent will take effective gold customs duty to 15 per cent.

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First published on: 01-07-2022 at 03:10:21 pm
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