Windfall tax

• Centre recently slashed windfall tax on crude oil to ₹4,100 per tonne from ₹6,400 per tonne.

About Windfall Tax

• A windfall is defined as an “unearned, unanticipated gain in income through no additional effort or expense”.
• It is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.
• It is imposed when the government notices a sudden increase in an industry’s revenue.
  • However, these revenues cannot be linked to anything the company actively pursued, such as its business strategy or expansion.
• Therefore, Windfall Tax is imposed on an industry’s profits when it experiences a sharp increase in revenue due to unrelated external events.
• 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.