Windfall tax

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Higher tax rate on firms/industries due to sudden increase in their profits

title: "Windfall tax" type: doc version: 1 created: 2026-02-28 author: "Wikipedia contributors" status: active scope: public tags: ["windfall-taxes", "corporate-taxation", "corporate-taxation-in-the-united-kingdom", "corporate-taxation-in-the-united-states", "tax-terms"] description: "Higher tax rate on firms/industries due to sudden increase in their profits" topic_path: "economics" source: "https://en.wikipedia.org/wiki/Windfall_tax" license: "CC BY-SA 4.0" wikipedia_page_id: 0 wikipedia_revision_id: 0

::summary Higher tax rate on firms/industries due to sudden increase in their profits ::

A windfall tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry.

There have been windfall taxes in various countries across the world, including Australia, Italy, and Mongolia (2006–2009). During the 2021–2023 global energy crisis, policy specialists at the International Monetary Fund recommended that governments institute permanent windfall profits taxes targeted at economic rents in the energy sector, excluding renewable energy to prevent hindering its further development.

Discussion

Support

Thomas Baunsgaard and Nate Verson of the IMF recommend implementing permanent windfall profit taxes on fossil fuel extraction but not temporary taxes or taxes on renewable energy. The taxes should always target a clear measure of excess profits and not be tied to price levels or revenue. They also recommend ensuring that markets can add new capacity quickly if-needed to avoid a spike in prices. Another 2022 IMF paper argues these taxes are a tool for efficiently taxing economic rents, which are often a result of monopolistic power or unexpected events like pandemics, war, or natural disasters, and contribute to windfall profits. Such profits have raised public and policy concerns about price gouging, where firms are perceived to be profiting excessively from unforeseen circumstances.

Eric Levitz argues that these taxes are worth pursuing as it would incentivize producers to invest in lowering prices during times of supply shocks by expanding production instead of giving out dividends to shareholders.

In 2022, Joseph Stiglitz argued for windfall profit taxes for oil and gas in Australia to disincentivize raising prices.

In 2022, an informal survey of 33 American and European economists at the IGM forum found majority support for taxing windfall profits.

In 2023, a group co-directed by Thomas Piketty suggested taxing windfalls from excess profits.

As of 2023, Isabella Weber has also been advocating for windfall profit taxes.

Criticism

A 2008 Wall Street Journal editorial argued that income taxes incentivize companies to make more profits which results in more tax revenue. A 2022 Reason article argued against windfall taxes.

Australia

Queensland, Australia has a windfall profits tax on energy sources like coal.

Polling by the Australia Institute as well as Oxfam showed more than two-thirds of Australians supported windfall profit taxes.

European Union

For fiscal years 2022 and 2023, The EU asked energy companies to return 33% of taxable surplus profits to governments to help fund energy affordability and address shortages.

On solar power

Rapid drop of photovoltaic equipment in the period 2011 to 2013 has created windfall profits conditions due to lagging response of regulators by adjustment of feed-in tariffs. Regulators in Spain, Greece, Bulgaria and Romania have introduced retroactive incentive reductions. In the Czech Republic a windfall tax has been introduced on solar electricity and further clampdown of solar power companies was considered in 2014.

Greece

In November 2022, Greece responded to soaring energy prices by imposing a 90% excess profits tax on energy companies. The Greek energy minister justified this decision by stating, "Our primary concern is to maintain affordable prices on consumer bills until the end of this major, pan-European energy crisis." The tax revenues were used to subsidize energy prices.

Netherlands

In November 2022, the Dutch government introduced a temporary windfall tax as a strategic response to mitigate the impact of surging energy prices. This 33% tax targets companies operating within the oil, natural gas, coal, and petroleum refining industries. The tax applies to profits that exceed the average profit margins of these sectors by more than 20% during the reference period from 2018 to 2021, as specified by the ministry. This measure is intended to buffer the financial shock experienced by consumers and stabilize market fluctuations in the energy sector.

Scandinavia

Finland announced its intention to tax windfall profits at large nuclear and hydro plants built before 1997 by 2010 or 2011. As non-CO2 emitting electricity generators, these plants have all seen their profits increase because of the European Union Emissions Trading System.

As of 2009, in Sweden, hydroelectricity is subject to a property tax and nuclear power plants to a capacity-based tax. While neither are windfall taxes, they were raised in 2008 due to higher windfall profits. In 2009, Norway, where hydro-electric power plants supply 99% of the country's electricity, similarly imposed a ground rent tax on hydro-electric power plants to reduce their profits by 30%.

Mongolia

Main article: Windfall tax (Mongolia)

Mongolia implemented in 2006 taxation on the profits made by mining companies operating in Mongolia. A tax on unsmelted copper and gold concentrate produced in Mongolia, it was the highest windfall tax in the world. The tax was repealed in 2009 and phased out over two years. Repealing the 68% tax law was considered essential to enable foreign mining companies to invest in mineral resources development of Mongolia.

United Kingdom

Main article: Windfall tax (United Kingdom)

In the United Kingdom, an early one-off windfall tax was levied on certain bank deposits as part of the 1981 budget under Margaret Thatcher. In 1997, the government of Tony Blair introduced a Windfall Tax for privatised utility companies. In May 2022, Boris Johnson introduced the tax for energy companies extracting oil and gas in the UK, to help fund a package to relieve the UK cost of living crisis.{{cite web |url=https://www.ft.com/content/05e49e39-a569-4346-88b9-4543ec9efbe1 |title=A striking U-turn to alleviate the UK cost of living crisis |publisher=The Financial Times |author=The editorial board |date=2022-05-27 |access-date=2020-06-12 |archive-date=2022-05-27 |archive-url=https://web.archive.org/web/20220527171709/https://www.ft.com/content/05e49e39-a569-4346-88b9-4543ec9efbe1 |url-status=live

United States

1980 excise tax

The Crude Oil Windfall Profit Tax Act of 1980 (P.L. 96-223) was part of a compromise between the Carter Administration and the Congress over the decontrol of crude oil prices.{{cite web | last = Thorndike | first = Joseph J. | publisher = Tax Analysts | title = Historical Perspective: The Windfall Profit Tax – Career of a Concept | work = Tax History Project | date = November 10, 2005 | url = http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/edf8de04e58e4b14852570ba0048848b | access-date = September 4, 2016 | archive-date = November 26, 2005 | archive-url = https://web.archive.org/web/20051126011759/http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/edf8de04e58e4b14852570ba0048848b | url-status = dead

Notes

References

References

  1. Martin, Peter. (2022-06-14). "Analysis: Australia already has a UK-style windfall profits tax on gas, but we'll give away billions unless we fix it soon".
  2. (2023-08-09). "Italy joins wave of windfall taxes on banks across Europe". Financial Times.
  3. Barber, Tony. (2023-08-12). "Opinion: Italy's disastrous bank tax". Financial Times.
  4. (2023-08-24). "Italy's hard-right government is starting to look more radical". The Economist.
  5. (2006-06-15). "Ivanhoe 'surprised' by new Mongolian windfall tax". CBC News.
  6. (August 2022). "Taxing Windfall Profits in the Energy Sector". IMF Notes.
  7. (2022). "Excess Profit Taxes: Historical Perspective and Contemporary Relevance". IMF Working Papers.
  8. Levitz, Eric. (2023-07-08). "The 'Greedflation' Debate Is Deeply Confused".
  9. Karp, Paul. (2022-07-18). "Nobel prize-winning economist Joseph Stiglitz calls for windfall profits tax in Australia". The Guardian.
  10. Vaitilingam, Romesh. (2022-09-19). "Energy costs: Views of leading economists on windfall taxes and consumer price caps".
  11. Harvey, Fiona. ""Polluting elite" belch out far more than their fair share of emissions".
  12. (May 12, 2023). "What has been driving inflation? Economists' thinking may have changed". [[Planet Money]].
  13. [https://www.wsj.com/articles/SB121780636275808495?mod=opinion_main_review_and_outlooks Editorial: What Is a 'Windfall' Profit?], ''[[The Wall Street Journal]]'', August 4, 2008
  14. Bailey, Ronald. (2022-03-09). "Elizabeth Warren Says the Solution to High Gas Prices Is Higher Taxes on Oil Companies".
  15. Curry, Antony. (June 13, 2023). "Commentary: Windfall taxes get a breezy airing Down Under". Reuters.
  16. Convery, Stephanie. (2024-06-18). "Australia's biggest companies made nearly $100bn in 'crisis profits' amid Covid and Ukraine war". The Guardian.
  17. Brown, Phillip. (August 7, 2013). "European Union Wind and Solar Electricity: Overview and Considerations, CRS Report for Congress".
  18. Johnstone, Chris. (September 24, 2014). "Czech industry ministry prepares new measures against solar power companies to curb renewables costs". Radio Praha.
  19. Tagaris, Karolina. (2022-10-03). "Greece to tax power firms on windfall profits from higher gas prices".
  20. (2022-10-01). "Netherlands to raise $3.2 billion with windfall tax on fossil fuel companies".
  21. (2009-05-06). "Finnish energy companies face windfall tax ambush". [[Utility Week]].
  22. Pistilli, Melissa. (12 March 2012). "Resource Investors to Watch Mongolian Parliamentary Elections". Resource Investing News.
  23. Hornby, Lucy. (25 August 2009). "Mongolia repeals windfall tax, paves way for Ivanhoe". [[Reuters]].
  24. (March 6, 2024). "What is the windfall tax on oil and gas companies and how much do they pay?". BBC.
  25. "CRS Report RL33305, The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy, by Salvatore Lazzari, p. 5.".

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