Government Exempts Diesel from Windfall Tax, Allows ATF Exports from Reliance SEZ Refinery

India Reimposes Windfall Export Taxes on Diesel and Aviation Fuel

The Indian government has reimposed windfall export taxes on diesel and aviation turbine fuel (ATF) as part of a revised fuel levy framework, effective March 26. The move aims to encourage domestic sales over exports amidst disruptions to global energy supplies caused by the Middle East conflict.

Under the revised framework, the government has introduced export duties of Rs 21.50 per litre on diesel and Rs 29.50 per litre on ATF, while keeping petrol exports exempt. The government has also cut excise duty on petrol and diesel by Rs 10 per litre.

Reliance Industries Ltd's special economic zone (SEZ) refinery, one of the largest contributors to India's refined product exports, will not be subject to the reimposed windfall export taxes. According to a senior official, the special additional excise duty and additional excise duty are not applicable on SEZ refineries due to judicial rulings.

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The government had first introduced windfall export taxes in July 2022 following Russia's invasion of Ukraine and withdrew them in December 2022. The taxes have been reimposed in the form of a special additional excise duty (SAED) to encourage refiners to prioritize domestic sales over exports.

Reliance owns and operates two refineries at Jamnagar in Gujarat: a 33 million tonnes per year unit catering to the domestic market and a 35.2 million tonnes only-for-exports SEZ unit. The export tax will be reviewed fortnightly to align the duty with prevailing rates.

According to Citi Research, the export taxes are equivalent to USD 36 per barrel on diesel and USD 50 per barrel on jet fuel. The report also notes that if the export tax is applicable only on the non-SEZ volumes, the impact should be largely offset by still-elevated diesel/jet fuel cracks vs pre-conflict levels.

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Jefferies has also commented on the reimposed export duty, saying it broadly caps diesel/ATF spreads at USD 20 per barrel for standalone refiners like Reliance. This is similar to the level of margin caps introduced during the Russia-Ukraine conflict in 2022. However, this time the movement in crude premiums and freight rates has been very stiff, making capturing spreads challenging for global refiners.