Govt hikes windfall tax on crude oil, export of diesel, ATF

• The government has hiked windfall profit tax levied on domestically- produced crude oil as well as on the export of diesel and ATF.
• Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels such as petrol, diesel and ATF.
• According to the notice, the levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been hiked to ₹5,050 per tonne from ₹1,900 per tonne.

Windfall tax

• It is designed to tax the profits a company derives from an external, sometimes unprecedented event— for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
• The US defines a windfall as an unearned, unanticipated gain in income through no additional effort or expense.
• These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business.
• Governments typically levy a one-off tax retrospectively over and above the normal rates of tax on such profits, called windfall tax.

Rationale behind the imposition of windfall tax

• Redistribution of unexpected gains, when high prices benefit producers at the expense of consumers
• To fund social welfare schemes,
• As a supplementary revenue stream for the government,
• As a way for the Centre to narrow the country’s widened trade deficit.

PRelims Take Away

• ONGC
• Windfall Tax
• ATF