Govt cuts windfall tax on diesel, ATF export

NEW DELHI: The government has halved the windfall tax on the export of diesel and scrapped the levy on jet fuel (ATF) shipments but raised the tax on domestically produced crude oil.

The tax on the export of diesel was cut to Rs 5 per litre from Rs 11, according to an official notification issued on Tuesday evening. Export of petrol will continue to attract nil tax. The tax on domestically produced crude oil was hiked to Rs 17,750 per tonne from Rs 17,000, a move that will hit producers like ONGC and Vedanta Ltd.

The cut in taxes - the second in as many weeks - came as India’s trade gap swelled to a record. The measures come hours after data showed India’s trade deficit ballooned to a record high in July, as elevated commodity prices and a weak rupee inflated the country’s import bill.

The gap between exports and imports widened to $31.02 billion in July from $ 26.18 billion in June. This, as a result of exports falling and elevated commodity prices together with a weak rupee, is inflating the import bill. Imports jumped 43.59 per cent in July from the year-ago month, while exports dropped 0.76 per cent.

India first imposed windfall taxes on July 1, joining a growing number of nations that taxes super normal profits of energy companies. But international oil prices have cooled since then, eroding profit margins at both oil producers and refiners.

On July 1, export duties of Rs 6 per litre ($12 per barrel) were levied on petrol and ATF and a Rs 13 a litre tax on the export of diesel ($26 a barrel). A Rs 23,250 per tonne windfall tax on domestic crude production ($40 per barrel) was also levied.

Thereafter, in the first fortnightly review on July 20, the Rs 6 a litre export duty on petrol was scrapped, and the tax on the export of diesel and jet fuel (ATF) was cut by Rs 2 per litre each to Rs 11 and Rs 4, respectively. The tax on domestically produced crude was also cut to Rs 17,000 per tonne. Now, the export tax on diesel and ATF has been cut following a drop in refinery cracks or margins. But the levy on domestically produced crude oil has been raised in line with a marginal increase in international crude prices.

MPC meet begins: Third consecutive rate hike on cards?

The Reserve Bank of India’s rate-setting panel on Wednesday began its three-day deliberations on the next bi-monthly monetary policy amid expectations of at least a 35-basis-point hike in the interest rate to check high retail inflation. It might be the third consecutive hike in the repo rate or short-term lending rate in the last three months. The central bank has already announced to gradually withdraw its accommodative monetary policy stance. Headed by RBI Governor Shaktikanta Das, the Monetary Policy Committee (MPC) is scheduled to announce its decision on August 5. The RBI raised the short-term borrowing rate (repo) twice so far this fiscal - by 40 basis points (bps) in May and 50 bps in June to tame retail inflation. The existing repo rate of 4.9 per cent is still below the pre-COVID level of 5.15 pc. The central bank sharply reduced the repo rate in 2020 to tide over the crisis induced by the pandemic. Experts are of the view that the RBI would raise the benchmark rate to at least the pre-pandemic level this week and even further in later months. Punjab & Sind Bank MD Swarup Kumar Saha said he expects RBI to hike the repo rate between 35 bps and 50 bps this week in view of the prevailing economic situation. Umesh Revankar, MD & CEO, Shriram Transport Finance Company said the MPC is expected to unanimously vote for an upward of 35 bps hike in policy rates in August 2022 as the domestic macro-economy has not changed much since the previous policy.