Windfall Tax
India cut its windfall tax on petroleum crude to 1,700 rupees ($20.53) a tonne from 2,300 rupees a tonne, according to a recent government notification.
About the Windfall Tax:
- What is it? It is a tax levied by governments against certain industries when economic conditions allow those industries to experience significantly above-average profits.
- The term “windfall” refers to an unexpected rise in profits, and the tax on windfall gains is known as the windfall tax.
- When is it imposed?
- When the government notices a sudden increase in an industry’s revenue, they impose this tax.
- However, these revenues cannot be linked to anything the company actively pursues, such as its business strategy or expansion.
- Rather, it is related to a one-off external event for which the business is not responsible.
- Consequently, a Windfall Tax is imposed on an industry’s profits when it experiences a sharp increase in revenue due to unrelated external events.
- A recent example is the sudden rise in the profits of the oil and gas industries due to the Russia-Ukraine conflict.
- The unexpected windfalls are taxed by the government over and above the normal tax rates.
- The most common industries that fall target to windfall gains tax include oil, gas, and mining.
- Purpose:
- Redistribution of unexpected gains when high prices benefit producers at the expense of consumers;
- To fund social welfare schemes;
- As a supplementary revenue stream for the government;
- As a way for the Government to narrow the country’s widening trade deficit.