Windfall Gain Tax Imposed

News Highlights

In a bid to curb a surge in gold imports and check ‘windfall gains’ being made by producers of crude oil and petroleum products.

The Centre has raised the import duty on gold to 15%, from 10.75%, and levied fresh taxes on the export of fuels, including petrol and aviation turbine fuel (ATF), as well as on the domestic sale of crude oil.

Government Hike Tax on Gold and Petroleum 

Impact on Importing Gold

• The government raised the customs duty on gold 
  • Aim – To check the rising import, which was one of the reasons for the outflow of foreign currencies and putting pressure on the rupee against the dollar.
• Background of Move
  • “There has been a sudden surge in imports of gold. In May, 107 tonnes of gold were imported and in June also the imports were significant. 
  • The surge in gold imports is putting pressure on the current account deficit.
  • To curb the import of gold, customs duty has been increased.

Impact on Petroleum Sector

• A Cess of ₹23,250 per tonne has been imposed on domestically-produced crude. 
  • It will impact large producers such as state-run Oil and Natural Gas Corporation, Reliance Industries Limited, and Cairn India Limited. 

• Small producers having less than two million barrels of annual crude output have been exempted from the levy.
• Similarly, taxes have been imposed on exports of petrol and diesel at the rate of ₹6 and ₹13 a liter. 
• A special additional excise duty (SAED) of ₹6 per liter has also been imposed on exports of aviation turbine fuel (ATF)
  • The taxes in the form of cess and SAED will have no impact on domestically consumed petrol, diesel, and ATF prices
• Reason for Imposing Tax
  • The domestic crude producers sell crude to domestic refineries at international parity prices. As a result, domestic crude producers are making windfall gains.
  • To offset ballooning public expenditure on fuel, food, and fertilizer subsidies amid skyrocketing inflation.
  • Aim to check rupee depreciation 
• Other Measures by Government 
  • Imposed special additional excise duties and cesses on exports of petrol and diesel 
    • Because private sector refiners were exporting these products in the international market for windfall gains rather than supplying domestically. 
  • As all these measures have been applied to exports and have no implication on domestic retail prices of petrol and diesel.
  • Export Policy Condition: Exporters would be required to declare at the time of exports that 50% of the quantity mentioned in the shipping bill has been/will be supplied in the domestic market during the current financial year

Windfall Gain

• Windfall gain (or windfall profit) is an unexpected gain in income that could be due to winning a lottery, unforeseen inheritance, or a shortage of supply. Windfall gains are transitory in nature.
• For instance, when real estate property prices rise dramatically, the owner can make a substantial amount of profit by selling the property.
• This sudden and unexpected rise in income is called windfall profit. Many countries define proper laws to tax windfall profits.

Pic Courtesy: Economic Times

Content Source: The Hindu