What is the Windfall Tax?

About Windfall Tax:

• It is a higher tax imposed on specific industries when they make unusual and above-average profits. 
• The term “windfall” refers to an unexpected rise in profits, and the tax on windfall gains is known as the windfall tax. 
• The increase in profits is not attributed to any expansion or investment strategy of a business but to a favourable external factor for which the business is not responsible. 
• A windfall tax is levied on industries or businesses that make disproportionate profits during unexpected situations like commodity shortages, wars, pandemics, changes in government policy, etc. 
• The most common industries that fall target to windfall gains tax include oil, gas, and mining.
• Some individual taxes—such as inheritance tax or taxes on lottery or game-show winnings—can also be construed as a windfall tax.
• Objective:

• The primary objective of windfall taxes is to appropriate a portion of these extraordinary profits, which are perceived to exceed normal returns, for the public good. 
• Governments assert that these profits are not solely due to the taxed entity's efforts but also due to external factors, justifying the redistribution of such gains to benefit society as a whole.
• It is also used as a supplementary revenue stream for the government.