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Tax relief for domestic crude, fuel exports as prices soften

NEW DELHI: The Centre on Wednesday scrapped export tax on petrol, cut the levy by a third on diesel and jet fuel, and brought down the windfall tax on domestic crude by 26% in step with recent moderation in benchmark prices. The special additional excise duty was slapped on July 1 to discourage overseas sales.
The move is in step with recent moderation in benchmark prices.
The special additional excise duty (SAED) on diesel and jet fuel exports, slapped on July 1 to discourage overseas sales amid domestic shortages, has been reduced from Rs 6 (7 US cents) per litre to Rs 4 (5 cents). It has been removed for petrol exports.
SAED on crude produced from domestic fields, imposed to tap part of the gains from soaring crude prices, has been cut to Rs 17,000 per tonne from Rs 23,250.
The duty has also been waived for refined products produced and shipped from SEZs (special economic zones), according to a government notification.
The export duty tweak will bring relief to private refiners such as Reliance Industries and Nayara Energy which are major exporters of refined products. Reliance will especially benefit as 52% of the refining capacity at its Jamnagar complex in Gujarat is in an SEZ.
The duty reduction will boost the realisation from every barrel of oil produced by companies such as state-run ONGC, Oil India and Vedanta. SAED had eroded their realisation by 40% but was expected to boost government revenue by more than Rs 67,000 crore per year. The reduction will improve realisation for producers but reduce the government’s revenue.
The duty cuts follow the recent moderation in crude prices and a correction in ‘cracks’ – the difference between crude and product prices, which has offset the fall in refining margins.
Brokerage Citi had on Monday said that the cracks were down by $40-50 per barrel from a month ago, reducing the under-recoveries on petrol and diesel that are being retailed at below cost. The reduced under-recoveries, however, offset the drop in refining margins, Citi said, making a case for export tax review.
The SAED was imposed after reports of fuel shortage from several states in June as private refiners starved their dealers to avoid losses as pump prices remained frozen, and preferred to export products at higher margins.
This diverted the entire market burden on the outlets of state-run retailers, stretching their distribution infrastructure and forcing them to import products to meet a double-digit growth in demand.
The windfall tax was levied on oil producers with more than two million tonne per year. Incremental production above the baseline of last year’s production and small players, such as winners of discovered small fields bid rounds, were exempted.



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