Fuel Tax Overhaul Raises Big Questions For Reliance, SEZ Export Duty Clarity Becomes Key For Margins & Government Revenue

Mumbai: The Indian government has made major changes in fuel taxes from March 26. It has imposed export duties of Rs 21.50 per litre on diesel and Rs 29.50 per litre on aviation turbine fuel (ATF), while petrol exports remain tax-free. At the same time, excise duty on petrol and diesel has been reduced by Rs 10 per litre to give relief to consumers and oil companies.

Big Uncertainty Around Reliance SEZ

The biggest question now is whether these export taxes will apply to shipments from Reliance Industries’ SEZ refinery.

Reliance operates two refineries in Jamnagar — one for domestic use and another in a Special Economic Zone (SEZ) mainly for exports. In the earlier 2022 windfall tax regime, SEZ exports were exempt from such duties.

According to analysts like Investec, if SEZ exports remain exempt, Reliance’s profit margins may not be affected much. But if the exemption is removed, margins on diesel and ATF exports could fall sharply.

Impact on Oil Companies

A report by Citi Research said the new tax changes are positive for oil marketing companies (OMCs). Lower excise duty will reduce their losses on selling petrol and diesel.

Earlier, OMCs were losing around Rs 35-40 per litre, which may now come down to Rs 19-23 per litre. This improves their financial position and raises their break-even crude oil level to about $80 per barrel.

Strong Margins Still Supporting Exports

Despite the new export duties, refining companies are still earning decent margins. Strong global demand has kept diesel and ATF prices high, helping refiners earn USD 15-25 per barrel in export margins.

This means exports may continue even if taxes apply.

No Tax on Crude Producers

In a positive move, the government has not reintroduced windfall tax on crude oil producers like ONGC and Oil India. This supports their earnings outlook in the near term.

Impact on Government Revenue

The tax changes could impact government finances significantly. Analysts estimate a revenue impact of around ₹80,000 crore annually, which may rise to Rs 1.5 lakh crore if SEZ exemptions continue.

What to Watch Next?

The key factor now is clarity on SEZ export rules. This will decide how much Reliance earns and how much revenue the government collects.