State OMCs spent Rs 1.96 trillion in excise duty in April-December FY21

Excise duty payment by OMCs rises 66% YoY, despite 30% decline in net sales

Excise duty payment by public sector oil-marketing companies (OMCs) touched a new high in the first three quarters of 2020-21 (FY21), despite lower sales volume and revenue.

The five listed OMCs have paid a record Rs 1.96 trillion in excise duties during the nine months of 2020-21 (FY21) — April-December period — surpassing the previous period high of Rs 1.81 trillion in 12 months ended March 2017 and around Rs 1.64 trillion in 2019-20.

With this, these companies have cumulatively spent Rs 10.74 trillion on excise duties since April 2014 — more than twice their cumulative excise payments in the previous 10 years.

The OMCs had cumulatively spent Rs 5.14 trillion on excise duty between 2003-04 (FY04) and 2013-14 (FY14).

Excise duty payment by Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) is up 66 per cent year-on-year (YoY) during the first nine months of FY21. 

In contrast, the companies’ net sales were down 30 per cent YoY during the period, while their total sales turnover, including excise duty, was down 18 per cent YoY.

At this rate, OMCs are likely to spend Rs 2.62 trillion on excise duty in FY21 — up 60 per cent YoY — while their net sales are likely to decline to a five-year low of Rs 8 trillion this fiscal year. The calculation is based on annualising the companies’ results for the first nine months of FY21.

The analysis is based on standalone annual and quarterly finances of five listed government-owned crude oil refining and marketing companies, namely IOL, BPCL, HPCL, Chennai Petroleum Corporation, and Mangalore Refinery and Petrochemicals.

The retail price of petrol, diesel, and other fuels is the sum of the companies’ net sales, excise duty, cess and state sales or value-added tax.

The central government raised excise duty on petrol by Rs 13 per litre and on diesel by Rs 16 a litre in two tranches in March and May last year. 

The taxes were hiked to siphon off the gains arising from a sharp dip in international crude oil prices in the first half of calendar year 2020.

With this, the total incidence of excise duty on petrol rose to around Rs 33 per litre; on diesel to around Rs 32 per litre.

The OMCs’ finances suggest that most of the increase in the companies’ sales turnover in recent years has come from an increase in excise duties rather than higher net sales — revenues are a net of indirect taxes that accrue to the company.

Net sales increase either when companies sell more goods and services or when price realisation (net of indirect taxes) improves or a combination of both.

The OMCs reported 30-per cent YoY decline in their sales to Rs 6 trillion during the April-December 2020 period. At this rate, their net sales are expected to decline to around Rs 8 trillion in FY21 — similar to their net sales in November 2012.

Historically, there seems to be negative correlation between companies’ net sales and indirect taxes on fuel. For example, there was steady rise in the company’s net sales between FY04 and FY14 and again between 2015-16 (FY16) and 2018-19, when excise duty was either stable or declining.

In comparison, the companies reported a decline in net sales between FY14 and FY16 and in the last two years as duty was hiked.

Poor net sales growth, in turn, has resulted in low net profits for companies.