Why in news? Union government hiked the windfall profit tax levied on domestically-produced crude oil as well as on the export of diesel and aviation turbine fuel (ATF).

Highlights:

Why tax windfall profits?

• ‘Windfall profits’ refer to an unanticipated spike in earnings of an entity resulting from an exogenous event (which could be one-off and/or prolonged) and not resulting from a business decision.
• The central idea here is for sovereigns to capitalise on the huge profits made by the entities and use it for specific domestic pursuits, by redistributing them for it to be used for domestic social service schemes.
• The K. Chaturvedi committee’s report on the Financial Position of Oil Companies (2008) had stated that taxing of these windfall gains has been seen as, in part to meet fiscal needs and in part to pursue redistributive justice.
• Windfall taxes are reviewed on a fortnightly basis and are subject to factors such as international oil prices, exchange rate and quantity of exports.
• As per the government, the collection of Special Additional Excise Duty (SAED) for the ongoing financial year is estimated to be 25,000 crore from production of crude oil, export of petrol, diesel and ATF. India had first imposed SAED in July 2022.

What is  Special Additional excise duty?

• Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
• This duty was levied on some special category of goods.
• As per the government, the collection of Special Additional Excise Duty (SAED) for the ongoing financial year is estimated to be Rs.25,000 crore from production of crude oil, export of petrol, diesel and ATF.
• India had first imposed SAED in July 2022.

What led to windfall gains?

• Russia – Ukraine war led to harp increases in fossil fuel prices as sovereigns went to look for other suppliers(Other than Russia) for its energy needs, culminating in major profits for oil companies.
• According to Reuters, all ‘Big Oil’ companies combined, more than doubled their profits in 2022.