Recently, the Government of United Kingdom had levied a 25% tax on the extraordinary profits of the Oil and Gas sector, known as the Windfall Tax. This is in addition to the regular tax that businesses have to pay.
“Windfall Tax is a tax levied by the
governments on unforeseen or unexpected large profits of certain sectors.”
Due to present economic conditions, certain sectors of
the economy may experience super-profits. For example, recent increases in crude
oil prices have resulted in spectacular profits for oil and gas producing
businesses, which have nearly doubled in the last year (May 2021: $60 per
barrel; May 2022: $110 per barrel). Generally, governments take this initiative
to channel the excess money in the hands of a few people in the economy into social
welfare activities.
The UK has termed the windfall tax an “Energy
Profits Levy”. This is in addition
to the regular tax of 40% (Ring Fence Corporation Tax – 30%; Supplementary
Charge – 10%). So, the total tax on profits works out to 65%. However, there is
also an Investment Allowance at the rate of 80% (reducing the Energy profits
levy from 25% to 5%) to provide tax relief to taxpayers. This Investment
allowance is only when the businesses invest in the oil and gas extraction in the
UK. The Government is expected to raise £5 billion for the next twelve months
from this tax. The government also introduced a sunset clause, effective at the
end of December 2025.
India has not yet put forth any proposal of levying the
windfall taxes on extraordinary profits of the Oil and Gas sector. The Government-controlled
oil and gas companies have already distributed the extraordinary profits so
earned in the name of the exorbitant dividends of which the government is receiving
the lion’s share. So, the chances of levying Windfall taxes seem to be trivial.
CA Ramakrishna Sanjay
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