Moneycontrol Pro Panorama | Taxing windfall profits

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When the Indian government introduced a windfall tax on oil companies, many experts ridiculed the move, saying it was trying to profit from a crisis. The government had projected that these taxes would fetch them around Rs 40,000 crore in FY23.

During the previous quarters, oil refining and marketing companies benefited from higher prices of final products in the global market. Indian companies were exporting their products to the international market at the cost of domestic consumers. To prevent companies from profiting from exports at the cost of Indian consumers, the government introduced windfall taxes.

Now the same policy is likely to be followed by the US. Ahead of the mid-term polls and uncontrolled inflation, the US President is now considering introducing windfall taxes on oil companies.

President Joe Biden threatened to seek a new windfall profits tax on major oil and gas companies unless they ramp up production to curb the price of gasoline at the pump just a week before the mid-term elections.

The President spoke against the oil giants as most of them reported huge profits which he called an “outrageous” bonanza stemming from Russia’s war on Ukraine. Biden warned them to use the money to expand oil supplies or return it to consumers in the form of price reductions.

Saudi Aramco, the world’s largest oil company earned $42.4 billion in profits for the third quarter. The figure was more than double the nearly $20 billion that Exxon Mobil earned for the period.

State-controlled Saudi Aramco will pay a large dividend of $18.75 billion mostly to the country’s government. London-based BP reported $8.2 billion in profits as compared to $3.3 billion in the same period in 2021. Britain recently introduced a windfall tax on petroleum producers that resulted in BP paying about $800 million under this levy.

Shell posted a third-quarter profit of $9.45 billion and said it will sharply boost its dividend by the end of 2022 and also extend its share repurchasing programme. The company is expected to complete its $4 billion of stock buybacks over the next three months after completing $6 billion in purchases in the second quarter. With a profit of $30.5 billion so far this year, Shell is well on track to exceed its record annual profit of $31 billion in 2008.

While the world is struggling in its battle against inflation, oil companies are reaping profits. These record profits would have gone unnoticed but for the sharp rise in inflation and the sharp rise in the cost of living.

Reports in the western media suggest that strong earnings could intensify calls to impose further windfall taxes on energy companies.

Earnings show that oil companies have benefited from the Russia-Ukraine war and now the government wants its pound of flesh under the pretext of controlling inflation.

Extreme market events put regulators to the test (republished from the FT)

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