The government on Thursday increased the windfall tax on domestically produced crude oil, raising it to Rs 3,300 per tonne from the previous Rs 3,200 per tonne, effective from February 16. Notably, this tax is imposed as a Special Additional Excise Duty (SAED). In addition, the SAED on diesel exports has also been raised to Rs 1.50 per litre from previously being nil.
On petrol and jet fuel or ATF, the levy will be retained at nil. India first imposed windfall profit taxes on July 1, 2022, joining a host of nations that tax supernormal profits of energy companies. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
What is windfall tax?
A windfall tax is a governmental measure that entails imposing higher taxes on specific industries when they unexpectedly generate profits beyond the norm. The term "windfall" denotes a significant and unforeseen surge in profits, while "tax" signifies the imposition applied to this extraordinary income increase.
This tax is implemented by the government in response to a sudden upswing in an industry's revenue. For instance, the recent escalation of tensions between Russia and Ukraine resulted in a surge in profits for the oil and gas sectors. Consequently, the government introduced a windfall tax targeting these industries.
Such profits typically arise from external factors rather than the result of the company's deliberate actions, such as business expansions or strategic initiatives. Therefore, when industries experience substantial revenue growth due to external events for which they are not directly accountable, a windfall tax is imposed on their earnings.
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