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Windfall Tax UPSC NOTE

 Why in news

  • The government has raised windfall tax on domestically-produced crude oil.

  • The hike is  to ₹3,200 per tonne from ₹1,700 per tonne. 

  • The tax is levied in the form of Special Additional Excise Duty (SAED). 

  • According to an official notification, SAED on export of diesel, petrol, and jet fuel or ATF, has been retained at nil. 

  • The new rates are effective from February 3.

  • India first imposed windfall tax on July 1, 2022, joining nations taxing supernormal profits of energy firms.

What is Windfall Tax?

  • A windfall tax is a special tax levied by governments on specific industries or companies.

  • When they experience unexpected and significantly above-average profits

  • These profits are often attributed to external factors outside the company's control, like sudden price hikes in commodities or unforeseen market conditions.

    • 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.

  • Politically motivated: Sometimes seen as opportunistic revenue generation rather than addressing specific issues.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Windfall Tax UPSC NOTE
Windfall Tax UPSC NOTE
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