Windfall taxes on domestic crude oil production and fuel exports will net the government nearly $12 billion (Rs 94,800 crore) over the remainder of the current fiscal year, while cutting profits from companies such as Reliance Industries Ltd and ONGC, Moody’s Investors said. Service Tuesday. †
On July 1, the government imposed windfall gain tax on gasoline, diesel and aviation turbine fuel (ATF) exports, as well as on domestic crude oil production. It has also required exporters to meet the requirements of the domestic market first.
“The tax hike will reduce the profits of Indian crude oil producers and oil exporters such as Reliance Industries Limited (RIL) and Oil and Natural Gas Corporation Ltd (ONGC),” Moody’s said in its comments on the new taxes.
Following the government announcement, Indian oil companies are required to pay Rs 6 per liter (approximately $12.2 per barrel) for petrol and ATF exports, and Rs 13 per liter (approximately $26.3 per barrel) for diesel exports . At the same time, upstream producers will have to pay taxes of Rs 23,250 per tonne (about $38.2 per barrel) of crude oil produced in India.
“Based on India’s crude oil production and petroleum product exports in the fiscal year ended March 31, 2022 (fiscal 2021), we estimate the government will provide nearly $12 billion in additional revenue for the remainder of fiscal 2022. generate.”, the rating agency said.
The additional revenue will help offset the negative impact of a cut in excise taxes on petrol and diesel announced at the end of May to curb rising inflation.
In May 2022, the government announced a cut in excise duty of Rs 8 per liter on petrol and Rs 6 per liter on diesel, reducing revenue by an estimated Rs 1 lakh crore.
“Significant additional tax revenues will offset the tax burden on the sovereign,” it said.
“We expect this government move to be temporary and taxes will eventually adjust to market conditions, including considerations related to inflation, external balances and currency depreciation.” Moody’s said higher revenues also support its view that the trend of gradual fiscal consolidation will continue despite the associated risks of the current inflationary environment, such as higher subsidy spending.
“India’s higher export duties on fuel products will limit export earnings, but the simultaneous announcement of higher customs duties on gold imports will limit a further increase in the current account deficit. The country’s large foreign exchange reserves remain sufficient to overcome any problems related to the repayment of the foreign debt, despite the weakening of the rupee,” it said.
The rating agency said the increase in tax payments is not expected to materially weaken the credit quality of the RIL or ONGC, as their margins will remain healthy.
“High crude oil prices will support oil producers’ revenues. And while profits from oil exports will decline due to windfall taxes, they are likely to remain higher than the levels from April 2020 to March 2022 if refining margins are maintained at the high levels. in April to June this year,” it said.
The increase in government taxes will limit the upside benefit to RIL’s exports, but will not materially affect its solid credit quality and excellent liquidity. RIL is the largest exporter of petroleum products from India.
In the fiscal year ending March 2022, the company generated approximately 41 percent of consolidated EBITDA from its oil-to-chemicals business.
Raising taxes on crude oil production will reduce ONGC’s margins, but this is mitigated by the company’s current high oil prices and low production costs, Moody’s said.