The government has recently withdrawn the windfall gains tax on domestic crude oil production and fuel exports, including diesel, petrol, and ATF. This tax, introduced 30 months ago amidst a spike in global crude oil and fuel prices triggered by Russia’s invasion of Ukraine, was aimed at managing the global energy crisis and ensuring adequate fuel availability within the country.
About Windfall Tax:
A higher tax is imposed on specific industries when they make unusual and 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.
The increase in profits is not attributed to any expansion or investment strategy of a business but to a favourable external factor for which the business is not responsible.
A windfall tax is levied on industries or businesses that make disproportionate profits during unexpected situations like commodity shortages, wars, pandemics, changes in government policy, etc.
The most common industries that fall target to windfall gains tax include oil, gas, and mining.
Rationale behind levying this tax
- Redistribution of unexpected gains when high prices benefit producers at the expense of consumers,
- To fund social welfare schemes, and
- As a supplementary revenue stream for the government,
- As a way for the Centre to narrow the country’s widened trade deficit.
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