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Question

The government recently imposed a windfall tax on the export of diesel, petrol and air turbine fuel. With reference to the windfall tax in India, consider the following statements:

1. When a company benefits from something that they are not responsible for, the financial gain that ensues is called windfall profits.

2. It is very likely that the windfall tax will increase the price of fuel in India.

3. It is typically a one-time tax over and above the normal rates of tax.

Which of the above statements are correct?

A 1 and 2 only Correct Answer Incorrect Answer
B 2 and 3 only Correct Answer Incorrect Answer
C 1 and 3 only Correct Answer Incorrect Answer
D 1, 2 and 3 Correct Answer Incorrect Answer
E 2 only Correct Answer Incorrect Answer

Solution

Statement 1 is correct: When a company benefits from something that they are not responsible for, the financial gain that ensues is called windfall profits. Statement 2 is incorrect: It is very unlikely that it will increase the price of fuel in India as this tax is not part of the input or output cost. Statement 3 is correct: Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits.

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