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Explained: Why India has cut windfall tax on diesel, aviation fuel exports

The Indian government has removed the recently imposed cesses and levies on diesel and aviation turbine fuel, and the cess on exports of petrol. What was the reason for the extra levies, and why have they been cut now?

An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal in China. (cnsphoto via Reuters)

With crude oil prices easing amid fears of a global recession, the Indian government has cut the recently imposed cesses and levies on diesel and aviation turbine fuel (ATF) and removed the cess on exports of petrol, effective Wednesday.

What are the duty cuts?

Additional excise duties equal to Rs 6 per litre on exports of petrol have been removed, while that on diesel exports has been cut to Rs 11 per litre from Rs 13 per litre earlier. Also, the cess by way of special additional excise duty (or windfall tax) on domestic crude being sold to domestic refineries at international parity prices has been cut to Rs 17,000 per tonne from Rs 23,250 per tonne, while the export duty on ATF has been lowered by Rs 2 to Rs 4 per litre.

The government has also exempted petrol, diesel and ATF from levy of duties when exported from refinery units located in Special Economic Zones.

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What was the reason for the extra levies?

With an aim to address the issue of fuel shortage in the country, the government had on July 1 imposed special additional excise duty on export of petrol and diesel. Cesses equal to Rs 6 per litre on petrol and Rs 13 per litre on diesel were imposed on their exports.

The government also imposed a cess of Rs 23,250 per tonne (by way of special additional excise duty) or windfall tax on domestic crude being sold to domestic refineries at international parity prices.

Earlier, Revenue Secretary Tarun Bajaj had said the increase in the duty will also be applicable to SEZs, but the export restriction will not be applicable.

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The Finance Ministry did not give a timeline for continuation of the levy but had said it will assess the situation every 15 days to review the impact of these duty changes.

Starting June, fuel pumps across the country have been reporting fuel shortage, leading to their closure. The situation of fuel shortage at pumps peaked during the middle of June, resulting in the government issuing a statement on the matter. The statement assured of enough fuel available in the country and asked oil marketing companies to ensure their fuel pumps remain open.

Global prices 

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Global crude prices had risen and domestic crude producers were making windfall gains. Private oil marketing companies were exporting petrol and diesel to foreign countries like Australia for better realisation.

The shortage of fuel at retail outlets was because oil marketing companies were not willing to sell the commodity at a loss since prices had not increased despite rising crude and depreciating rupee – these two factors had led to oil marketing companies losing Rs 20-25 per litre on diesel and Rs 10-15 per litre on petrol.

Over the last fortnight, the benchmark contract of Brent on the Intercontinental Exchange has fallen by over 12 per cent on fears of a recession in the US and overall global recession, prompting the government to undertake the review.

First published on: 20-07-2022 at 08:49 IST
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