The government is terribly wrong about the rationale
The Modi government needs to realize that fanciful taxes like windfalls are not the solution to the nation’s inability to raise funds to run its massive social welfare programs
The Center imposed a tax of Rs.6 per liter on the export of petrol and jet fuel (ATF) and Rs.13 per liter on the export of diesel from July 1, on the grounds that refineries were making a profit exceptional on these exports thanks to soaring prices on international markets following the ostracism of Russian oil by European countries.
Additionally, a tax of 23,250 rupees per ton was levied on domestically produced crude oil on the grounds that these producers were receiving international parity prices for their crude, which also increased following the breakdown of hostilities between Russia and Russia. Ukraine. It is like snatching with the left hand what was given by the right.
Reliance, Vedanta and Nayara Energy, supported by Rosneft, which have chosen to export rather than supply domestic petrol pumps, are the most affected. In addition to paying windfall tax, they must supply domestic gas pumps with at least 50% of what they export. They prefer to export simply because the PSU oil marketing companies have stopped rocking the consumer boat with relentless price hikes and these private parties simply cannot sell at a higher price of gasoline in India.
Also Read: Reliance, ONGC Shares Tumble as Govt Imposes Export, Windfall Tax
Much has already been done in the form of crunching numbers on this point by various media pundits. Thus, this article would avoid that and instead focus on the limited question of the justification and meaning of the windfall tax.
Indian hit list
Etymologically, the term boon comes from fruits falling from trees for travelers to pick up and feast on. In due course, the phrase spread to include any receipt of unexpected money. In India, we imposed a tax at the maximum marginal rate of 30% with no deductions or exemptions on receipts from lotteries, crosswords, TV competitions like “Kaun Banega Crorepati” (KBC) and horse racing. Cryptocurrencies recently joined this hit list.
Have we been selective in our categorization of windfall gains? What about the phenomenal stock market profits made by traders and investors? Business promoters are offloading a substantial portion of their holdings at low prices by piggybacking on their companies’ IPOs with Offers to Sell (OFS) for phenomenal profits. Admittedly, the resulting benefits are often artificial but have all the ingredients of a boon.
Long-term capital gains from stock exchanges are released with just a slap on the wrist – a 10% tax after a century-old exemption from the first Rs 1 lakh. And short-term stock market gains at 15%. Market gains have a huge windfall element. A salaried person who does not benefit from this chance or boon often pays 30% tax on his income above Rs 10 lakh.
What about the appreciation of the property over the years? A property acquired in 1964 for Rs 1 lakh in a prime location in Delhi is now selling for Rs 15 crore. Far from characterizing it as a windfall and taxing it accordingly, our tax law provides for an exemption provided he reinvests the resulting long-term capital gains in another residential property within the prescribed period. Similarly, properties acquired long ago in prime locations now fortuitously fetch staggering sums in rent. They do not attract windfall profits from the sneaky appellation.
The truth is that the government should not resent a company whose profits have been made in a legitimate manner given that they are subject to vicissitudes back and forth. Business cycles and aberrations are too well known to bear repetition. Oil prices have fallen in the past and may fall again after Russia ceases hostilities. Would the government then bail out oil exporters to compensate for falling prices?
The UK government has imposed a windfall income tax of 25% on profits from oil production after May 26, 2022 in the country. India imitated its colonial master in principle but was smarter in the details. The UK has chosen an additional income tax to bludgeon so-called windfall profits. The Indian government has chosen excise duties and taxes which are here and now. If it had been an additional income tax, the government would have had to wait for the successive installments of the quarterly withholding tax and all of the additional revenue would have been realized much later in the day. Also, revenue can be manipulated or manipulated, but production cannot unless oil can be produced or exported on the sly.
Former Prime Minister Indira Gandhi drew criticism for imposing a maximum marginal rate of 97% (including a 10% surcharge) on income tax in 1971-72, at the height of her zeal socialist. When the wealthy protested that they’d rather not make money, she realized the stupidity of insulting profits and hitting them with a heavy hand. The incumbent Modi government must also realize that fanciful taxes like windfalls are not the solution to the nation’s inability to raise funds to run its gargantuan welfare programs.
The use of the windfall tax came after he drew anger and criticism for relying on fuel taxes to run his welfare programs that further hurt the poor. But he must realize that the export of petroleum products has provided the country with valuable foreign currency. Let’s not lose sight of the fact that we must strengthen our foreign exchange reserves at a time when capital flight from India is multiplying thanks, among other things, to the successive increases in interest rates in the United States.
Also read: One-off tax to recover ₹1 lakh crore revenue lost in fuel excise cuts: Report
Let’s not lose in the swing what we gained in the roundabout. And by the way, the national production of crude oil represents only 15% of the country’s needs. The president of the ONGC had promised to reinvest windfall profits in investment programs rather than squandering them. Domestic producers could have been offered a compromise — an additional tax or reinvestment. The country must increase its domestic production.
(The federal government seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions contained in the articles are of the author and do not reflect the views of The Federal)