This question has been a buzz in Indian media for the past few weeks. But what is this windfall tax that Indian media is going on about?
What is the windfall Tax?
When a company benefits from something that they are not responsible for and, as a result of that, enjoys the financial gain, that gain is referred to as windfall profits.
Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.
Why Now?
So what’s happening is global oil and gas prices are at a peak level due to the Russia-Ukraine conflict. If we take the example of any Indian upstream oil companies, say ONGC, or Oil India. They declared an all-time high net profit in the fiscal year 2021-22.
ONGC declared that its net profit grew by 258% to reach ₹40,306 crores. While the Oil India announced a net profit of ₹3,887.31 crore, which is 123% higher than in the preceding year.
As the Indian government has recently gone for the cut in Central Excise Duty and considering that it is spending more on food and fertilizer there is the requirement of any alternate levy to full fill this gap and one of the solutions could be levying a windfall tax on oil companies.
Countries like Italy and the UK have already imposed a windfall tax over the past couple of weeks.
Will such tax increase the Price of the Fuel?
Very unlikely, as this tax is not part of the input or output cost, but levied only on profit.
Is India really considering such a levy of tax?
While there is no formal denial by the government, upstream oil companies have said they have heard nothing about this.
Let me know your thoughts on whether you believe that such a tax should be levied or not?