Windfall tax

Windfall tax

Subject: Economy

Why in the news?

In line with the moderation in global crude prices and drop in refining margins, Centre undertook the third review of its recently imposed levies on fuel and cut the tax levy on domestic crude oil production.

Details:

• This is the third review undertaken by the Finance Ministry after imposing the levies on fuel initially on July 1.
• Important steps taken:
  • The windfall tax on diesel increased  to Rs 7 a litre from Rs 5 a litre,
  • Tax on export of aviation turbine fuel (ATF) was retained at Rs 2 a litre
  • Export of petrol will continue to attract nil tax.

Background:

• Global crude prices had risen
• Domestic crude producers were making windfall gains by exporting petrol and diesel to foreign countries like Australia at international price parity.
• There was shortage of fuel at retail outlets because oil marketing companies were not willing to sell fuel at a loss since fuel prices have not increased despite rising crude and depreciating rupee 
• With an aim to address the issue of fuel shortage in the country and growing profit margin, the government on July 1 had imposed a special additional excise duty or windfall tax on export of petrol and diesel. 

Concept:

Windfall taxes:

• Windfall taxes are imposed by a government against certain industries when they experience above-average profits due to economic conditions.
• The tax was imposed after the companies were seen to be making abnormal profits with oil prices shooting up in global markets due to geopolitical turmoil.
• Windfall taxes are primarily directed on companies in a certain industry that sees the most windfalls economically.
• Aim-It aimed at increasing local supplies and boosting its revenues.