Windfall Tax

AAA

DEFINITION of 'Windfall Tax'

A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

INVESTOPEDIA EXPLAINS 'Windfall Tax'

As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against the tax. The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs. However, those against windfall taxes claim that they reduce companies' initiatives to seek out profits. They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole.

Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society. This issue came to a head in 2005, when oil and gas companies, such as Exxon Mobil who reported profits of US$36 billion for the year, experienced unusually large profits due to rising energy prices.

RELATED TERMS
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital ...
  2. Shareholder

    Any person, company or other institution that owns at least one ...
  3. Windfall Profits

    Huge profits that occur unexpectedly due to fortuitous circumstances. ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. Profit

    A financial benefit that is realized when the amount of revenue ...
  6. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
Related Articles
  1. Changes In Tax Legislation And Regulation
    Taxes

    Changes In Tax Legislation And Regulation

  2. 4 Fatal Financial Fantasies
    Entrepreneurship

    4 Fatal Financial Fantasies

  3. Why You Can't Influence Gas Prices
    Active Trading

    Why You Can't Influence Gas Prices

  4. Weighing The Tax Benefits Of Municipal ...
    Taxes

    Weighing The Tax Benefits Of Municipal ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center