India considers lowering windfall tax as global oil prices decline

India is considering cutting a recently implemented windfall profits tax as profits for fuel exporters and oil producers dwindle due to the collapse in global crude oil prices, according to people familiar with the matter.

Discussions are private, the people, who asked not to be identified, said the measure, which aims to tax super-profits on domestic oil production and export shipments of gasoline, diesel and jet fuel, will be reviewed at a meeting on Friday. They added that if a cut is decided, it can be implemented immediately.

Global oil prices have fallen by about 20 percent in recent weeks, due to fears of a recession in the United States, as well as China’s struggle to get through the debilitating period of curbing Covid. Margins for diesel, gasoline and jet fuel have all crashed in the past two weeks – denting profits for India’s biggest fuel exporter Reliance Industries Ltd. and oil producer Oil & Natural Gas Corp.

As of July 1, fuel exporters pay about $13 per barrel for shipments of gasoline and jet fuel and $25 for diesel while crude oil producers levy a tax of $40 per barrel. Finance Minister Nirmala Sitharaman said the government would assess the fee every 15 days. A spokesman for the Finance Ministry declined to comment.

stock reaction

Reliance and ONGC shares jumped on the news. Reliance rose as much as 2.4 percent in Mumbai, while ONGC rose 6.6 percent and Chennai Petroleum rose 4.2 percent. The people said, without elaborating, that export taxes on gasoline are likely to see the biggest drop, while duties on diesel, jet fuel and crude oil could also be cut to offset the impact of lower prices.

Private refiners, such as Rosneft-backed Reliance and Nayara Energy Ltd, are the biggest losers from the export tax as the two make up 80 percent to 85 percent of India’s total exports of gasoline and diesel, according to industry consultant FGE.