Volatile taxation
1 min read . Updated: 04 Jan 2023, 12:19 AM IST
PremiumThe hydrocarbon markets are volatile and the frequency of windfall tax shifts has been disconcerting
The Indian government has increased its windfall tax on crude oil and aviation turbine fuel (ATF) and also its export tax on diesel. With Russian oil reportedly being purchased well below the $60 per barrel cap set by the West’s sanctions regime even as global market prices rule much higher, producers would be making exceptional profits. Given its heavy spending needs, the Centre was understandably tempted to take some of it to keep its fiscal deficit in better control. Many other countries have also levied such a tax. But hydrocarbon markets are volatile and the frequency of windfall tax shifts has been disconcerting. It has not even been a month since India’s windfall levies were slashed as world prices had softened. The trouble with a tax driven by conditions of volatility is that it’s in perpetual need of adjustment. This keeps businesses on edge, their calculations hostage to evershifting liabilities. This is a major put-off for investors. Tax stability has its value. Taxation regimes that vary their burdens too often are taken as signallers of high policy risk. One-off taxes found legitimacy under the rare circumstances of covid followed by a commodity surge. But they must be wielded with care.
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