Windfall Tax

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Overview:

The government recently cut the windfall tax on domestically-produced crude oil to Rs 8,000 per tonne from Rs 10,500, and halved the levy on export of diesel to Rs 5 per litre.

About:

  • The taxes were introduced on July 1, as the Centre felt that elevated crude prices were allowing oil companies to make windfall profits, and that the exchequer must get a share of such gains.
  • The reduction in tax rates follows the easing of crude oil prices in international markets.

 

Windfall tax        

  • A windfall tax is a tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits.
  • The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.
  • In other words, windfall tax is imposed on companies that have seen their profits extraordinarily not because of any clever investment decision or an increase in efficiency or innovation, but simply because of favourable market conditions.

Source : Indian Express