[Free Speech] The Absurd “Windfall Tax”: Earn More, Pay Again

Debate continues over whether to impose a windfall tax on oil refiners. Behind this controversy lies the Russia-Ukraine war. Because of the war, disruptions emerged in crude oil supply chains from Russia, one of the world’s largest oil-producing countries, causing oil prices to surge. As a result of this rise in oil prices, refiners temporarily recorded higher margins than before the crisis.

In political circles, a proposal has been put forward to impose a windfall tax on refiners’ strong earnings as part of sharing the burden amid soaring oil prices and inflation. The argument is that, since these profits were gained unexpectedly, refiners should contribute to the economic recovery through some form of contribution. However, it is questionable whether it is desirable to create a new tax and collect it on the profits generated by specific companies.

The spike in oil prices was caused not by refiners, but by disruptions in crude oil supply chains. Domestic refiners operate by processing crude oil imported from abroad and selling refined end products. For that reason, their case differs from that of crude oil development companies in oil-producing countries, where windfall tax discussions are taking place. Yet collecting a windfall tax is effectively the same as treating refiners as if they had intervened in the oil price surge and profited from it. Such taxation would be little different from additionally taxing people who earned profits because stock prices rose and distributing that money to those who suffered losses.

The core purpose of a windfall tax is to have companies that earned profits in difficult circumstances contribute to the national economy through a kind of burden-sharing. But conversely, when those companies post losses, will the government provide support such as tax cuts? In fact, when refiners suffered losses two years ago due to falling oil prices, they received no meaningful support. It is entirely natural for specific industries to gain or lose depending on external issues, so beyond the tax items already established, it is inappropriate for the government to additionally intervene in this way and impose taxes on private companies based on whether they are experiencing a boom or a downturn.

Applying such a windfall tax only in the current oil price surge would amount to discrimination against a particular industry. Since 2020, during the COVID-19 pandemic, countless companies suffered enormous losses. Yet even in those circumstances, some businesses, due to the nature of their industries, were not affected by the pandemic and continued to earn steady profits. At that time, unlike now, there was no discussion of raising additional tax revenue from them as part of sharing the economic pain caused by COVID-19. For that reason, a separate tax discussed only for refiners runs counter to fairness.

Companies that achieve unexpected success due to changes in their surrounding environment may voluntarily contribute to society. That is desirable and worthy of applause. But simply because they earned somewhat higher profits, for the government to impose a special tax called a “windfall tax” on them is not only something one would hardly expect to see in a liberal democratic country that follows the principles of a market economy, but it may also become a factor that hinders corporate growth.

Junhyuk Yang, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 더 벌었으니 또 내라는 터무니없는 '횡재세'

Author: Jun-hyeok Yang

Date: 2022-08-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=8&idx=24927