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Why in the News?
Recently, the Finance Minister defended the windfall tax imposed by the Centre on domestic crude oil producers.
Key Points:
About
Windfall Tax
- A windfall gain tax is imposed by the government on a company.
- When a corporate gains from something that it can’t control or are responsible for, that financial gain is windfall profits.
- For Example, the energy price rise as a result of the Russia-Ukraine conflict.
Why do Governments worldwide introduce windfall taxes?
- To redistribute unexpected gains when high prices benefit producers at the expense of consumers.
- To fund social welfare schemes.
- As a supplementary revenue stream for the government.
- Analysts also saw the windfall tax as a way for the Centre to narrow the country’s widened trade deficit.
What are the issues with imposing such taxes?
- Windfall taxes creates uncertainty in the market about future taxes since they are applied in a retrospective manner.
- Populist Measure: Windfall taxes are populist and politically opportune in the short term.
- Companies may argue that it is the profit they earned as a reward for the industry’s risk-taking to provide the end user with the petroleum product.
