The government on Friday slapped Export Tax on petrol and diesel. The tax has been levied against the backdrop of some refineries making “phenomenal profits” by shipping petroleum products overseas at the cost of domestic supplies. The government also imposed a Rs 66,000-crore Windfall Tax on crude oil produced locally.

A Rs 6 per litre tax on export of petrol and ATF and Rs 13 per litre tax on export of diesel is effective from July 1, according to the Finance Ministry’s notifications.

A Rs 23,250 per tonne tax was levied on crude oil produced domestically, which at last year’s production level of close to 29 million tonnes (mt) translates into annual revenue of Rs 66,000 crore to the government. 

Assuming the trend of exporting 5.7 mt of diesel and 2.5 mt of petrol in the first two months of the financial year that began in April 2022 continues for the full financial year, the revenue from the Windfall Tax on crude oil and the Export Tax should neutralise the Rs 1 lakh crore hit the government had taken when it had rolled back the pandemic-era hike in Excise Duty on petrol and diesel. 

The Export Tax is to deter companies, such as Reliance Industries and Rosneft-based Nayara Energy, from preferring overseas markets over domestic supplies.

Giving out reasons for the introduction of the new levies, Finance Minister Nirmala Sitharaman said: “phenomenal profits” earned from abnormal prices that refiners earned from shipping overseas led to the new taxes. 

“We don’t grudge people earning profits,” she said. “But if oil is not being available (at petrol pumps), and they are being exported… exported with such phenomenal profits. We need at least some of it for our own citizens, and that is why we have taken this twin-pronged approach.” She further added: “It is not to discourage exports; it is not to discourage India as a refining hub. It is certainly not against profit earning, but extraordinary times do require some such steps.” 

The Windfall Tax on oil producers was triggered by Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) reporting bumper profits in the March quarter (when international prices soared to a near 14-year high of $139 per barrel) and record earnings in 2021-22. 

ONGC reported a record net profit of Rs 40,306 crore on a revenue of Rs 1,10,345 crore in 2021-22. OIL posted Rs 3,887.31 crore of net profit in FY22. Vedanta’s Cairn Oil & Gas, which is India’s second-largest oil producer, too had bumper earnings. 

The new levy plus the Oil Industry Development Cess and royalty the producers currently pay will take the total incidence of taxation to about 60 per cent of the oil price. 

A windfall tax is a one-off tax on companies that have seen their profits surge extraordinarily not because of any clever investment decision they have taken or an increase in efficiency or innovation, but simply because of favourable market conditions.