There is a report that India is considering a windfall tax on oil and gas producers (state-owned as well as private) to offset ballooning public expenditure on fuel, food and fertilizer subsidies amid skyrocketing inflation.
- This is not the first time India is considering a windfall tax. Policymakers flirted with the idea in 2018, and before that in 2008, when oil prices were on a high.
- But, both times, the idea was abandoned, after it was strongly opposed by private oil companies.
What is a windfall tax?
- A windfall tax is a one-off tax imposed by a government on a company. The idea is to target firms that were lucky enough to benefit from something they were not responsible for.
- Windfall tax is, simply, a tax levied on companies whose revenue has been boosted purely by luck, or events for which they are not responsible.
- For instance, energy companies have benefitted from the global spike in oil and gas prices on account of Russia’s invasion of Ukraine.
- Energy firms are getting much more money for their oil and gas than they were last year, partly because demand has increased as the world emerges from the pandemic and partly because of supply concerns due to Russia’s invasion of Ukraine.
Background
- Russia’s attack on Ukraine has upset the supply chain, pushing world inflation to uncomfortable levels. And one of the reasons for soaring inflation is the steep rise in crude oil prices.
- The government exchequers are bleeding, but oil and gas companies around the world are minting money.
- And these gains are not coming because of any improvement in their processes but because of the geopolitical situation.
- Recently, the United Kingdom (UK) announced a 25 percent levy on energy companies to ease the financial burden on households. Some other countries like Italy and Hungary have also imposed this tax.
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