There is a significant cut in the Aviation Turbine Fuel (ATF) windfall tax, dropping it to ₹1.5 from ₹5. Aviation Turbine Fuel (ATF) make approximately 30-40% of the price for the running an airline in India, and a drop in its costs will increase the returns margins of the companies.
But this increase will be transferred to the passengers also?
Centre has slashed the windfall profit tax levied on domestically produced crude oil and on export of diesel and Aviation Turbine Fuel (ATF). The new tax rates are effective from Friday December 16, 2022.
Levy on crude oil produced by all domestic companies-
- ₹1,700 per tonne from ₹4,900.
- Tax on the export of diesel- ₹5 per litre from ₹8.
- Tax on the export of ATF to ₹1.5 a litre from ₹5.
Windfall tax is an extra levy on companies
Windfall tax is an extra levy on companies whose profits have been raised purely by luck, or events for which they are not responsible it.
It often happens in the energy sector that oil refining companies have benefitted from externals – not related to their investment or strategy. For instance, the international spike in energy costs on account of Russia’s invasion of Ukraine has increased the profits of these companies It is calculated by taking away any price that producers are getting above a defined threshold.
On July 1, India began imposing the windfall tax on crude oil producers and levies on exports of gasoline, diesel and aviation fuel after private refiners sought overseas markets to earn from robust refining margins of the companies, instead of selling at lower-than-market rates in the country. Since then, the government has been modifying the windfall tax take around in every 2 weeks.
- Windfall tax strengthens the government’s earnings by drawing away funds from the deep pockets of oil companies, however Public state undertaking (PSUs) like Oil and Natural Gas Corporation Ltd (ONGC) too operate in the sector, it in turn also dents government gain from all these companies.
- As Gorvement has lowered the tax cut, it may also ease the cost consumer pays if companies will decide to pass on the earnings to them.
- There is a substantial cut in the jet fuel windfall tax, lowering it to ₹1.5 from ₹5. ATF makes up, according to Live Mint, about 30-40% of the cost of running an airline in India, and a decrease in its costs will increase the profit margins for companies. If the companies permit it to percolate, to encourage the price sensitive market, it may decrease ticket fare.
- However, the cuts arrive amid a 14% slump in global crude since November. This balances any unexpected profit for energy companies. So it has to be seen that the easing by the center materialises into any positive impact on consumer purse.
- Experts tell that one of the reason center lowered the rates was, it anyways was not getting substantial sum from it. A month-old report from Live Mint states, the government has handled to earn only ₹2,500-3,000 crore a month from the levy, far less than it needs to compensate for the losses in revenue due to excise cuts.
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Source: Hinustan Time