Government to Receive Up to Rs 1,200 Crore Fortnightly from Hike in Fuel Export Duties

Government to Gain Rs 1,000-1,200 Crore Every Fortnight from Hike in Fuel Export Duties

The Central government is likely to gain approximately Rs 1,000-1,200 crore every fortnight as a result of the recent hike in fuel export duties, two government sources have informed Moneycontrol. This additional revenue is expected to offset some of the impact the government is facing due to the excise duty reductions announced in March.

On April 11, the Centre more than doubled the export duty on diesel, increasing it from Rs 21.5 per litre to Rs 55.5 per litre, while simultaneously raising the levy on Aviation Turbine Fuel (ATF) from Rs 29.5 per litre to Rs 42 per litre. The export duty, also known as windfall tax, was reintroduced on March 27 in an attempt to discourage fuel exports for domestic needs.

Typically, when global crude prices spike, private refiners find it more profitable to export fuel rather than sell it locally. By taxing exports, the government makes outbound shipments less lucrative. The recent hike in global crude prices has seen Brent crude prices rise nearly 71% to $102.8/bbl since February.

Prior to the hike in fuel export duties, the Centre had announced a Rs 10 per litre reduction in excise duty of petrol and diesel on March 27. As a result, the Centre was losing Rs 7,000 crore every fortnight, according to Central Board of Indirect Taxes and Chairman (CBIC) Vivek Chaturvedi. The Centre had also announced a windfall tax on exports of diesel and ATF, which would help the government gain Rs 1,500 crore every fortnight, as per Chaturvedi.

However, with the recent hike in windfall taxes, the government is now expected to lose approximately Rs 4,300-4,500 crore every fortnight in tax revenue, the sources said. This represents a reduction of around Rs 2,500-2,700 crore in tax revenue per fortnight compared to the previous losses.

| Tax Revenue Loss (Rs crore) | Before Hike | After Hike | | --- | --- | --- | | Excise Duty Reduction | 7,000 | 4,300-4,500 | | Windfall Tax Gain | 1,500 | - | | Net Loss | 5,500 | 4,300-4,500 |

A back-of-the-envelope calculation suggests that on an annualised basis, the government will lose around Rs 111,000-117,000 crore in tax revenue, assuming the duty rates on fuel exports and petrol and diesel domestic rates remain unchanged.

The government sources have stated that crude oil prices are volatile at the moment, and until they stabilise, the Centre will review the windfall tax rates and excise duty rates every fortnight. The steep revision in fuel exports duties reflects the government's ongoing effort to curb the export of refined fuels at the expense of domestic availability, particularly as global energy prices remain volatile.

The government has stated that the export duty hike is not intended to boost revenue but rather to prevent exporters from taking undue advantage of price differences. Internationally, retail prices are not frozen, unlike in India, and many refiners find it lucrative to export refined diesel and ATF, leading to windfall revenue that the government is taxing.

The move is also aimed at shielding the aviation sector from a potential price shock. Following the hike in the windfall tax on Aviation Turbine Fuel (ATF), officials are reviewing tax structures to ensure rising fuel costs do not translate into higher airfares.

Airlines may charge higher airfares from passengers due to an increase in ATF, but if the exports of ATF are discouraged, there would be adequate domestic supply, which would help curb airlines fares.

The government has previously imposed export duties on commodities like sugar to curb outbound shipments and ensure adequate domestic availability. A similar approach is now being applied to fuel.

Contractual export commitments Companies will still have to honour their existing contractual export commitments. In such cases, the duty will apply and may partially offset revenue losses arising from earlier excise duty cuts, said the sources.

In some cases, exports may continue if international buyers are willing to absorb the higher cost, including the export duty. This would depend on demand conditions in importing countries and prevailing global prices. However, overall, the policy intent is clearly to make exports less competitive for Indian companies.

India's fuel exports are largely directed towards neighbouring and regional markets, including countries in South Asia such as Sri Lanka and Bangladesh, as well as parts of Southeast Asia, including markets like the Philippines. Demand from these regions will also influence how export flows evolve despite the duty, the sources said.