What is the Windfall Tax?

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About Windfall Tax:

What is it? It is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.
When is it imposed?
- When the government notices a sudden increase in an industry’s revenue, they impose this tax.
- However, these revenues cannot be linked to anything the company actively pursued, such as its business strategy or expansion.
- Consequently, a Windfall Tax is imposed on an industry’s profits when it experiences a sharp increase in revenue due to unrelated external events.
Rationale behind the imposition of windfall tax:
- Redistribution of unexpected gains, when high prices benefit producers at the expense of consumers;
- To fund social welfare schemes;
- As a supplementary revenue stream for the government;
- As a way for the Government to narrow the country’s widened trade deficit.

Q1) What is a Direct Tax?

A direct tax is a tax that a person or organization pays directly to the entity that imposed it. Examples include income tax, real property tax, personal property tax, and taxes on assets, all of which are paid by an individual taxpayer directly to the government.

Source: India reimposes windfall tax on petroleum crude after two months