According to a CNBC report, the Indian government will cut the windfall tax again in the upcoming bi-weekly review. Since oil prices are relatively stable, there would be no incentive to cut corporate taxes.
The contingency tax on crude oil is Rs 17,000 per ton, up from Rs 17,750 per ton previously. The export duty on diesel was also reduced from Rs 11 per liter to Rs 5 per liter in the second review. In addition, there is no export duty on gasoline and aviation turbine fuel (ATF).
Also read| Government cuts contingency tax on fuel exports and raises tax on domestic crude oil
What is windfall income tax?
Income tax is levied by the government on companies. When a corporation profits from something that it cannot control or is not responsible for, that financial benefit is windfall.
After lowering the central excise tax and increasing spending on fertilizers and food, government spending increased. As a result, the government imposed an additional tax on oil companies to make up for the gap.
Simply put, a windfall tax is a higher rate of tax on profits generated by a sudden windfall for a particular organization or industry, usually as a result of geopolitical upheaval, natural disaster or war that causes unusual surges in demand or supply disruptions. The conflict between Ukraine and Russia is a prime example.
Why does the government levy a windfall tax?
Income tax is credited to government revenue. In May 2022, the Government of India reduced the excise duty by Rs 8 and Rs 6 per liter of petrol and diesel, respectively, to curb inflation.
According to the Press Trust of India, the windfall crude oil tax was expected to generate revenue of Rs 650 billion and a tax of Rs 527 billion if implemented throughout the year.
Consequently, windfall tax revenues can help the government offset losses.
Which countries impose windfall income tax?
India is not the only country that has introduced a windfall tax on oil corporations.
United Kingdom leadership candidate Rishi Sunak also introduced a contingency tax on oil and gas companies when he was finance minister.
“The oil and gas sector is making incredible profits not as a result of recent changes in risk approaches, innovation or efficiency, but as a result of rising global commodity prices, partly caused by the war in Russia,” Rishi informed lawmakers in the House of Commons. .
Italy is another country that introduced a windfall tax in May. The country announced a 25 percent tax on energy companies to support consumers and businesses hit by high fuel prices.
How does the windfall tax affect fuel prices?
The windfall tax was introduced when companies charged unrealistically high prices for gasoline during the Russian-Ukrainian conflict. Thus, the primary purpose of a windfall tax is to reduce the affordable cost of goods and services in a way that benefits the end consumer.
But fuel prices have come down since the introduction of $15 a barrel, which means windfalls are not needed. Thus, companies will try to achieve a revision of the state tax.
(Written by Zuhair Zaidi)
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