Windfall tax
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,[1] Italy,[2][3][nb 1] and Mongolia.[5][6] Following the 2021–2023 global energy crisis, policy specialists at the International Monetary Fund recommended that governments institute windfall profits taxes targeted at economic rents in the energy sector, excluding renewable energy to prevent hindering its further development.[7]
In Australia, windfall taxes include:
In both cases, windfall tax originates in High Court decisions that certain state taxes were unconstitutional. Thus, the States were required to repay to the taxpayers the amounts previously collected under these unconstitutional taxes. The purpose of the windfall taxes were to treat these repayments as income to the taxpayer, and impose a Commonwealth tax upon that income at a rate of 100%. Thus, even though the tax laws in question had been declared unconstitutional, the taxpayers effectively did not receive any repayments; rather, the amounts due back to them from the States were taxed by the Commonwealth. The Commonwealth would then repay these amounts to the States, with the result that the States were not in any financial disadvantage.
Czech Republic[edit]
The temporary windfall tax in the Czech Republic[8] will apply from 1 January 2023 for a period of 3 years (i.e. 2023-2025) for exceptionally profitable companies in the energy trading and production, banking, petroleum, and fossil fuel extraction and processing sectors. It will operate as a 60% tax surcharge applied to the excess profits of these companies determined as the difference between the tax base in 2023-2025 and the average of the tax bases for the last 4 years (i.e. 2018-2021) plus 20%. Czech Ministry of Finance (MF) expects the extraordinary tax to bring in approximately CZK 85 billion to the state budget in 2023, with another CZK 15 billion to be brought in next year by the EU price caps for electricity producers.
The proposed windfall tax is the government's response to the current need to raise temporary additional revenue for the state budget to pay for extraordinary expenditures related mainly to compensating high energy prices for citizens and companies.
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In Sweden, hydro power is subject to a property tax and nuclear power to a capacity-based tax. Both taxes were raised at the beginning of 2008 due to higher windfall profits. Norway similarly imposed, as of 2009, a ground rent tax on hydro-electric power plants, and Finland announced its intention in 2009 to tax nuclear and hydro power as of 2010 or 2011.[18]
On solar power[edit]
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.[19] In the Czech Republic a windfall tax has been introduced on solar electricity and further clampdown of solar power companies was considered in 2014.[20]