Windfall tax: $12 margin hit for Reliance; govt to rake in Rs 1.3 trn
05/07/2022
new delhi, juL 4: The windfall taxes imposed by the government on domestic crude oil production and fuel exports will hit ONGC's earnings severely while shaving off up to $12 per barrel in refining margins for Reliance Industries Ltd. The new levies will give the government up to Rs 1.3 trillion additional revenue, brokerages said.
In a surprise move, the government on July 1 increased import duties on gold (by 5 per cent), added export duties on petrol and ATF (Rs 6/litre; $12 per barrel) and diesel (Rs 13/liter; $26/bbl) and slapped a windfall tax on domestic crude production (Rs 23,250 per tonne; $40/bbl).
This follows earlier duties imposed on steel (15 per cent) and iron ore (up 20-45 per cent).
While the export tax will be applicable on only-for-exports refinery of Reliance Industries (RIL), the restriction on product exports wherein at least 30-50 per cent is first supplied domestically will not apply to SEZ units.
HSBC Global Research in a note said in May 2022, the government announced a cut in the excise duty of Rs 8 per litre on petrol and Rs 6 a litre on diesel, which is estimated to have reduced its revenues by Rs 1 trillion.
"The additional excise duty just announced and effective from July 1, 2022 aims to fill this revenue gap. We estimate these taxes could generate Rs 1.2 trillion in government revenue and could also discourage the export of products which are being diverted away from the domestic market." The windfall tax on crude production could generate revenue of Rs 65,600 crore and tax on export products another Rs 52,700 crore if they were to be continued for the full year.
Kotak Institutional Equities said the taxes will result in additional tax revenues of Rs 1.3 trillion on an annualised basis and Rs 1 trillion for the rest of FY2023 assuming the government retains the taxes for the entire year.
UBS estimated that the government can raise Rs 1.38 trillion annually from additional taxes.
"Based on diesel and gasoline export volumes in past year and estimate for FY23, we estimate additional revenues of Rs 68,000 crore on three transportation fuels. Similarly, windfall taxes on crude can raise Rs 70,000 crore in additional revenues." Nomura said the windfall taxes could potentially impact RIL's GRM by $12 per barrel (Rs 47,000 crore on an annualised basis).
Goldman Sachs said it saw limited earnings risk for RIL (despite wide scenarios of $1.5-12.7 risk to gross refining margins or GRMs from new taxes) as the spot implied GRM run rate is over $27 per barrel.
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