What is Windfall Tax?

About Windfall Tax:

• What is it? It is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.

• When is it imposed?
  • When the government notices a sudden increase in an industry's revenue, they impose this tax.
  • However, these revenues cannot be linked to anything the company actively pursued, such as its business strategy or expansion.
  • Consequently, a Windfall Tax is imposed on an industry's profits when it experiences a sharp increase in revenue due to unrelated external events.
• 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 Government to narrow the country’s widened trade deficit;