The German government is said to be planning to introduce a special levy that will see the country’s oil, gas and coal firms pay 33% of windfall profits, potentially generating a revenue of between one and three billion euros, Reuters reports.
Dubbed the "EU energy crisis contribution", the tax is likely to affect dozens of energy companies and will target their 2022 and 2023 profits. The tax would be implemented by the end of 2022, Reuters cited finance ministry sources as saying.
If implemented, the new levy will affect oil, gas and coal companies whose profits for the current year and the coming one exceed by 20% or more than their 2018-2021 average. However, the tax has a major drawback: according to Katharina Beck, spokeswoman on financial matters for the Greens, the planned levy can be circumvented on a large scale by companies moving profits abroad.
"The draft of the finance ministry for windfall profit levy for oil and gas companies falls well short of what is necessary," Beck said in a statement carried by Reuters.
The fat profits being earned by energy companies in many oil-producing countries courtesy of high commodity prices has attracted the attention, and sometimes ire, of governments with some imposing windfall taxes.
Back in May, UK Finance Minister Rishi Sunak imposed a windfall tax on oil and gas majors as the government tries to alleviate the country's worsening cost-of-living crisis. Chancellor Sunak said that the levy would be taxed on energy companies that were making “extraordinary profits” due to the spike in commodity prices. The British government imposed what it calls a "temporary targeted energy profits levy" with a so-called "investment allowance" levied at 25% to incentivize oil and gas firms to reinvest their profits.
Meanwhile, in August, Argentina introduced a one-time windfall tax on companies whose income tax determined for tax year 2021 or tax year 2022 is at least AR$100m (approx. US$752,000). The measure is seen as an attempt by Argentina’s center-left government to reduce the fiscal deficit and contain runaway inflation, which is now approaching 70%.
Last month, U.S. President Joe Biden said he would impose higher taxes on oil companies that record “windfall” profits without reinvesting in production, “The oil industry has not met its commitment to invest in America and support the American people,” Biden said Monday, calling the industry’s profits “a windfall of war”.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.