The windfall taxes on home crude oil manufacturing and gas exports will generate near USD 12 billion (Rs 94,800 crore) for the federal government within the the rest of the present fiscal whereas trimming income of corporations reminiscent of Reliance Industries Ltd and ONGC, Moody’s Investors Service mentioned Tuesday. On July 1, the federal government imposed windfall achieve taxes on the export of petrol, diesel and aviation turbine gas (ATF), and on the home manufacturing of crude oil. It has additionally mandated exporters to satisfy the necessities of the home market first.
“The tax increase will reduce the profits of Indian crude producers and oil exporters like Reliance Industries Limited (RIL) and Oil and Natural Gas Corporation Ltd (ONGC),” Moody’s mentioned in its feedback on the brand new taxes. Following the federal government’s announcement, Indian oil firms should pay Rs 6 per litre (round USD 12.2 per barrel) on exports of petrol and ATF, and Rs 13 per litre (round USD 26.3 per barrel) on exports of diesel. At the identical time, upstream producers should pay taxes of Rs 23,250 per tonne (round USD 38.2 per barrel) of crude oil produced in India.
“Based on the production of crude oil and export of petroleum products in India in the fiscal year ended on March 31, 2022 (fiscal 2021), we estimate that the government will generate close to USD 12 billion of additional revenue for the remainder of fiscal 2022,” the ranking company mentioned.The further income will assist to offset the unfavorable influence of a discount in excise duties for petrol and diesel introduced in late May to tame hovering inflation.
In May 2022, the federal government introduced a minimize within the excise responsibility of Rs 8 per litre on petrol and Rs 6 a litre on diesel, which is estimated to have decreased its revenues by Rs 1 lakh crore.”Significant further tax income will offset fiscal strain on the sovereign,” it mentioned.”We anticipate this authorities measure to be momentary and that taxes might be finally adjusted in accordance with market situations, together with issues associated to inflation, exterior balances and forex depreciation.” Moody’s mentioned larger income additionally helps its view that the gradual fiscal consolidation development will proceed, however related dangers posed by the present inflationary atmosphere, reminiscent of larger subsidy spending.
“India’s higher export duties for fuel products will curtail export receipts, but the concurrent announcement of higher customs duties on gold imports will serve to limit a further widening of the current account deficit. The country’s large foreign exchange reserves remain sufficient to preempt any issues concerning the repayment of external debt despite the weakening of the rupee,” it mentioned.
The ranking company mentioned the rise in tax funds isn’t anticipated to materially weaken the RIL or ONGC’s credit score high quality as a result of their margins will proceed to be wholesome.”High crude oil costs will assist the earnings of oil producers. And whereas income generated from oil exports will fall due to windfall taxes, they are going to seemingly stay larger than the degrees over April 2020 to March 2022 if refining margins are sustained on the highs seen in April to June this yr,” it mentioned.
The improve in authorities taxes will restrict the earnings upside for RIL’s exports, however is not going to materially have an effect on its strong credit score high quality and glorious liquidity. RIL is the most important exporter of petroleum merchandise from India.In the fiscal yr ended March 2022, the corporate generated about 41 per cent of consolidated EBITDA from its oil-to-chemicals enterprise.The improve in taxes on crude oil manufacturing will scale back ONGC’s margins, however that is mitigated by present excessive oil costs and the corporate’s low price of manufacturing, Moody’s mentioned.
Source: www.financialexpress.com”