What is Windfall Tax
Windfall tax is a tax that is imposed on the companies that earn extra ordinary profits due to external events. The most common industries that fall target to the windfall tax are gas and oil
The government aims to collect more tax revenue and discourage companies from exporting
Example
In Recent case, the reason for the windfall profits is the Russia-Ukraine war which disrupted the supply of crude oil in the international market and caused the prices to shoot up
In 2022 when Russia-Ukraine war started many Indian companies were able to purchase crude oil from Russia at a discounted price and refine it to sell it at a much higher price in the international market, the government of India imposed a windfall tax on such profits.
Impact of Windfall Tax on Businesses
The major concern is the uncertainty created by the frequent revision of the tax rate
A business or company that has experienced a sudden increase in income or profits is levied with a windfall tax has to face a Reduction in Profits
Impact of Windfall Tax on Consumer
Due to Windfall tax businesses pass on the cost of a windfall tax to consumers which results in increase in prices
If Business experience in reduction in profit margins due to the Windfall Tax then they may cut the jobs to maintain their Profit Margins
Impact of Windfall Tax Cut
The positive impact is that the cut in windfall gains tax reduces the tax burden for Business
1 thought on “Windfall Tax”