Why in news
The government slashed windfall tax on domestically produced crude oil to ‘nil’ per tonne with effect from September 18.
The tax is levied in the form of a special additional excise duty and is notified fortnightly based on average oil prices in two weeks.
Windfall tax
A Windfall Tax is a type of tax that is levied on companies or individuals who have unexpectedly and/or dramatically gained large profits, often due to external factors beyond their control.
It is commonly levied on industries such as oil, gas, and mining.
The purpose is to capture a portion of the extraordinary profits that companies make and redistribute it for public good.
It is a strategic measure to promote transparency and fairness and responsible economic practices in the energy industry.
India first implemented windfall profit taxes on 1st July 2022, aligning with other countries that tax excessive profits of energy companies.
The tax rates are reassessed every 2 weeks, taking into account international crude prices from the preceding fortnight
Importance
Raise additional revenue: Especially during economic downturns when regular tax income might be lower.
Reduce income inequality: Redistribute unexpected profits deemed excessive to benefit broader society.
Discourage excessive pricing: Disincentivize companies from raising prices beyond reasonable levels.
Address specific social needs: Allocate funds to social programs or environmental initiatives.
Criticisms of windfall taxes
Discourages investment: Companies might choose to invest less in expansion or innovation if future profits are taxed heavily.
Impacts market stability: Can create uncertainty and volatility in specific industries.
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