Q. With reference to windfall tax, consider the following statements;
1.These are designed to tax the company’s investment strategy or their expansion of business.
2.These taxes are imposed retrospectively and can create uncertainty in the market about future taxes.
Which of the statements given above is/are correct?
Statement 1 is incorrect: Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event— for instance, the energy price rise as a result of the Russia-Ukraine conflict.
These are profits that cannot be attributed to something the firm actively did like an investment strategy or an expansion of business.
Statement 2 is correct: Since windfall taxes are imposed retrospectively and are often influenced by unexpected events, they can brew uncertainty in the market about future taxes.
Source: The Hindu