What is windfall tax: Some of you would perhaps be aware of the term windfall tax that came to limelight when Indian Government imposed it on a particular sector. When economic conditions are favourable to the certain industries, which have posted or likely to post extraordinary gains or profits in due course of its business, Government may impose windfall tax on a sector-specific industry. Generally, windfall tax is ad valorem and levied on the profits of the companies. The purpose of such levy is to redistribute tax for promoting various social welfare programmes. Even taxes recovered on lottery, horse races, game show prize money, among others, could be construed as windfall tax.
Recent levy on windfall or extraordinary gains
The Indian Government on Friday i.e. 1st July 2022, slapped windfall tax on domestic crude oil producers, to enhance the domestic supply of petroleum products. The indigenous producers sell crude oil to local/national refineries at prevailing global prices, thus reaping the benefit of extraordinary gains. The Government has also announced levy of additional excise duty on export of petrol and diesel amounting to INR 6/- and INR 13/- per litre, respectively. A majority of private outlets had stopped fuel supplies, leading to shortage of fuel for almost a month.
The additional cess of INR 23,250/- in the form of special excise duty on crude is likely to have major impact on the profitability of PSU and Private companies. This decision may result in collection of INR 67,400/- crore (US$ 8.5 billion) per annum to the ex-chequer, as production of crude oil is almost 29 million tonnes a year. Small oil producers, whose annual production was less than 2 million tonnes last year, have been kept out of the ambit of new levy. A slew of companies, namely, ONGC, Oil India, Vedanta Ltd, HOEC, MRPL, Chennai Petroleum, and RIL, among others, are going to be affected with this announcement, which was reflected in the share prices on the bourses yesterday, falling in the range of 5 to 15%.
What Finance Minister has said
In a briefing with journalists, Finance Minister Nirmala Seetharaman said that in extraordinary circumstances Government has endeavoured to achieve twin objective of boosting domestic fuel supply and generating additional revenues. Our objective is to make India a refining hub with enhanced exports and profits for the indigenous oil producing companies. However, these are extra-ordinary profits, and a portion of it has to be utilised for our own citizens. At a time when domestic supplies are encountering shortfall, interest of Indian consumers has to be kept in mind.
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Thanks for sharing. I was not at all aware of this windfall tax concept. Superbly explained.