A windfall tax is a higher tax rate on profits that result from a sudden windfall gain to a particular company or industry, often as the result of a geo-political disturbance, war or natural disaster that creates unusual spikes in demand and/or interruptions to supply.
Historically, taxes on windfall profits have been imposed as a result of opportunistic 'price gouging' or 'profiteering', whether perceived or real. Notable instances of sudden and dramatic increases in oil industry profits that provoked such taxes around the world include the 1970's OPEC oil embargo, the Persian Gulf wars and the global economic sanctions imposed on Russia and ensuing oil and gas shortage in response to their invasion of Ukraine.
Main article: Windfall tax (Mongolia)
Mongolia implemented in 2006 taxation on the profits made by mining companies operating in Mongolia. A tax on unsmelted copper and gold concentrate produced in Mongolia, it was the highest windfall tax in the world. The tax was repealed in 2009 and phased out over two years. Repealing the 68% tax law was considered essential to enable foreign mining companies to invest in mineral resources development of Mongolia.
In 2022 a windfall tax was levied on wind power in Turkey.
Main article: Windfall tax (United Kingdom)
In the United Kingdom, an early one-off windfall tax was levied on certain bank deposits as part of the 1981 budget under Margaret Thatcher. In 1997, the government of Tony Blair introduced a Windfall Tax for privatised utility companies. In 2022, Boris Johnson's government announced a windfall tax for energy companies, to help fund a package to relieve the UK cost of living crisis.
In 1980, the United States enacted the Crude Oil Windfall Profit Tax Act (P.L. 96-223) as part of a compromise between the Carter Administration and the Congress over the decontrol of crude oil prices. The Act was intended to recoup the revenue earned by oil producers as a result of the sharp increase in oil prices brought about by the OPEC oil embargo. According to the Congressional Research Service, the Act's title was a misnomer. "Despite its name, the crude oil windfall profit tax... was not a tax on profits. It was an excise tax... imposed on the difference between the market price of oil, which was technically referred to as the removal price, and a statutory 1979 base price that was adjusted quarterly for inflation and state severance taxes."
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. In the Czech Republic a windfall tax has been introduced on solar electricity and further clampdown of solar power companies was considered in 2014.
According to The Economist magazine windfall taxes on energy companies are a bad idea because energy markets go through boom and bust cycles - they say such taxes would deter investment in boom times because companies would fear the profits of the investments being taken in bust times.