Shares of Indian fuel exporters were down up to 3 percent on September 1 after the government nearly doubled the so-called windfall tax on exports of diesel and raised the levy on aviation fuel, a move that is expected to dent the profitability of these companies.
ONGC dropped 2.2 percent, Reliance Industries Ltd was down 1.5 percent, Chennai Petroleum Corp Ltd 3.3 percent, Mangalore Refinery & Petrochemicals 1.5 percent and Oil India lost 0.5 percent In the morning trade.
Oil marketing companies, however, were trading higher. HPCL and BPCL gained 1 percent.
"We believe specific duties (albeit expected) amid commodity volatility are a dampener as downside risks are unprotected, though the government said it would review this move every fortnight. Capping export gains, in addition to the domestic price freeze, is also a negative signal,” Emkay Research has said in its latest report.
The government's decision to impose windfall taxes on fuel export will offset excise duty cuts on domestic prices of petrol and diesel and help lower the budget gap in the current fiscal year, analysts said. This will also help in easing the risk of higher than budgeted borrowings.
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The government has hiked the windfall profit tax on the export of diesel to Rs 13.5 a litre from Rs 7 and on jet fuel exports to Rs 9 a litre, besides raising the levy on domestically-produced crude oil in line with the hardening of global prices.
The tax on Aviation Turbine Fuel (ATF) exports was raised to Rs 9 from Rs 2 per litre with effect from September 1, a finance ministry notification issued late August 31 said. The tax on domestically-produced crude oil has been increased to Rs 13,300 a tonne from Rs 13,000.
The tax on exports has been raised as margins rose, while the levy on domestically-produced oil was increased marginally on changes in international oil prices and on expectations of a price rise on a possible production cut by the Organisation of the Petroleum Exporting Countries and its allies.
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