Scrap windfall tax for oil and gas exploration: FICCI

Subject: Economy

Section :Fiscal Policy

Concept :

The government should scrap the windfall profit tax on domestically-produced crude oil as the levy is adversely impacting the capex-intensive exploration of oil and gas, the industry said in its recommendation for the forthcoming annual budget.
India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies.
At that time, a ₹23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was levied.

Windfall Tax

Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event— for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business.
A windfall is defined as an “unearned, unanticipated gain in income through no additional effort or expense”.
Governments typically levy a one-off tax retrospectively over and above the normal rates of tax on such profits, called windfall tax.
One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to volatile or erratic profits for the industry.

Rationale:

There have been varying rationales for governments worldwide to introduce windfall taxes, from redistribution of unexpected gains when high prices benefit producers at the expense of consumers, to funding social welfare schemes, and as a supplementary revenue stream for the government.