Published on: August 23, 2022

Windfall tax

Windfall tax

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http://eaa25.org/2019/04/15/eaa-chapter-25-april-2019-activities Government has revived the windfall tax on Aviation Turbine Fuel (ATF) exports at ₹2 per litre, raised the export tax on diesel from ₹5 a litre to ₹7, and slashed the central excise levy on domestically produced crude oil to ₹13,000 per tonne as opposed to ₹17,750 levied a fortnight ago.

Highlights:

  • These new windfall taxes will kick in from August 19, reflecting the latest review of such taxes that were first imposed in July in view of global crude oil prices resulting in super-normal profits for petroleum producers.
  • India’s petroleum exports had risen 119% to $8.6 billion in June, but slipped sharply to $6.3 billion in July following the imposition of these windfall taxes, reflecting a year-on-year growth of 9.2%.

What Is A Windfall Tax?

  • A windfall tax is a one-off tax imposed by a government on a company. When a company benefits from something that they are not responsible for, the financial gain that ensues is called windfall profits.
  • Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.
  • As the government’s spending has gone up after it recently cut Central Excise Duty and spent more on food and fertiliser, it levied a windfall tax on oil companies to make up for the gap.

Why Tax Was Imposed Only On Domestic Oil Producers?

  • The international crude prices have surged in the last few months. The domestic crude producers sell crude to domestic refineries at international parity prices.
  • With the rise in crude prices, domestic oil producers and refiners made additional revenue as crude oil was selling at a record $120 per barrel in the international market recently.
  • Besides, Indian refiners were also making profits by importing discounted crude oil from Russia and selling them outside the country. Domestic refiners were earning far more by selling their oil overseas where they fetched better prices. The government imposed an export tax to check this practice.

How The Government Benefits From The Windfall Tax?

  • The windfall tax adds to the government’s earnings.
  • The government had in May announced an excise duty cut of Rs 8 and Rs 6 per litre on petrol and diesel respectively to cool down inflation.
  • Finance Minister Nirmala Sitharaman had said this will have revenue implications of around Rs 1 lakh crore a year for the government.

Is India The Only Country To Impose Windfall Tax?

  • India is not alone, there are several other countries that impose windfall taxes on companies.
  • In May this year, the then UK Finance Minister Rishi Sunak imposed a windfall tax on oil and gas majors.

Italy also levied a windfall tax recently. Early in May, Italy announced taxing the profits of energy companies at 25 per cent to help fund a support package for consumers and businesses that have been hard-hit by soaring energy costs. The tax is a hike from an existing 10 per cent windfall tax imposed in March on the profits of energy companies