Question 1 · 10 marks · 169 words written
Opening · a definition
Windfall taxes are imposed on large profits made by PSUs/private companies/individuals due to economic shocks like sudden fall in global petroleum prices.
Windfall taxes ⇒ equality :
Body · points
- Reduce economic gap between rich and poor.
- Use of taxes for socio-economic development eg schools, hospitals, skilling etc.
- Just because profits were not due to company's production but by luck.
- Shield poor from future shocks eg Petroleum windfall collection can be used to provide fuel subsidy when prices increase.
However, windfall taxes is not a panacea for economic equality
Limitation of windfall taxes :
Limits profitability of enterprises → less investment and job creation → poverty.
Windfall taxes are on-off i.e can be imposed only in special circumstances → not sustainable source of taxes.
Limited pool of companies/ individuals on whom it can be imposed.
Tax terrorism → poor FDI and capacity expansion.
Close · a way forward
Though windfall taxes can provide temporary resources to state, structural steps like formalisation of economy will help in expanding tax base.