In order to tax the profits of businesses making large sums of money as a result of an exceptional occurrence, the windfall tax was implemented in the 1970s. But since its inception, this tax structure has been the subject of discussion.
This year’s windfall tax on crude oil has recently made news. However, the government must impose a windfall tax on their income in light of a sharp increase in their yearly profit. Check out the details below for more information on this recent windfall tax story.
What is Windfall Tax?
A windfall tax is an additional tax that the government imposes on particular industries that see above-average and unexpected profits. “Windfall” describes, as its name implies, a sudden and sharp rise in revenues. However, the term “tax” suggests that there is a charge placed on this sharp increase in revenue.
This tax is imposed by the government in response to an unexpected increase in an industry’s earnings. For example, the recent conflict between Russia and Ukraine helped the oil and gas companies by causing a sharp increase in their profits. Thus, these industries were subject to a windfall tax by the government.
Why does India change the windfall tax on crude petroleum?
Every two weeks, the government adjusts the windfall tax rate based on the average oil price for the previous two weeks. The following justifies a change in the windfall tax:
- to obtain a portion of the additional money oil producers make as a result of the high price of oil.
- to lessen the hardship that the high cost of fuel on the domestic market has been placing on consumers and transporters.
- to balance the growing government spending and trade deficit brought on by the weak rupee and the recent Central Excise Duty decrease.