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When A Windfall Is No Windfall At All

Thursday, 01 November 2007   (0 Comments)
Posted by: TaxFind™
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When A Windfall Is No Windfall At All

South Africa will not impose a windfall tax on synthetic fuel producers such as Sasol and PetroSA, Minister of Finance Trevor Manuel announced at the beginning of August.There was a collective sigh of relief from big fuel producers when, in the same statement, the National Treasury announced that this step was taken to create an environment conducive to additional investments in domestic fuel security.This announcement led to shares in Sasol, the world's biggest producer of synthetic fuel from coal, with an output of 160 000 barrels per day, leaping up by almost 9%.

When the possibility of a windfall tax was announced in the budget speech in February last year,reaction was varied.Federal Alliance leader Louis Luyt was horrified – most probably when he had nightmare visions that the same could have happened to the fertilizer industry in the seventies. "I suppose that the platinum mines will be next if the platinum price stays high while SABMiller can expect a windfall tax after good beer sales during a warm summer,” Luyt said.

Windfall tax in other countries

The idea of a windfall tax is definitely not exclusive to South Africa.In  the  past legislation levied a tax on companies because of the profits they earned as a result of the sharp increase in oil prices brought about by the Arab oil embargo.Amid low oil prices, the tax was ended in 1988 by President Ronald Reagan.Over the ocean in the United Kingdom, a once-off tax was imposed by the government in 1997 on the profits of privatised utilities companies.It was applied to fund the government's Welfare to Work programme, which was started to provide employment and to help single parents and the disabled for the period up to 2002.The profits were assessed as the difference between a company's privatised sale price and its average value over the subsequent four years.The tax was levied on a number of companies including BAA, BG, British Telecom, British Energy, Centrica, National Power, PowerGen, the regional electricity companies and the water and sewerage companies.

A bonanza, a godsend, a boon

The idea of a windfall tax set the thought processes in motion. What exactly is a windfall?The Oxford Word finder describes it as "an apple or other fruit blown to the ground by the wind”.It also says that a windfall is a "piece of unexpected good fortune, a bonanza, a godsend or a boon”.

Imagine that a great Receiver of Revenue in the sky would slap on a tax every time you had a stroke of good fortune? Finding a parking spot in front of the entrance to the shopping mall on the last Saturday of the month – wham, down comes the tax.Arriving home with the Sunday papers with the magazine still included – another few percentage points added.The traffic cop pulling over the black BMW speeding in front of you while you were doing 140 km/h.Tax it will be.

Can you think what would happen in the wider public arena if all windfalls were taxed? The Department of Home Affairs getting their house in order.Down comes the tax.Robert Mugabe agreeing to step down.WHAM! South African crime figures falling to lower than those in Singapore.WHAM! Poverty eradicated, a cure for AIDS found, the hole in the ozone layer filling up and puffing out – WHAM, WHAM, WHAM!

The idea of taxing a person on a stroke of good luck is too horrible to contemplate.Wouldn’t it be sad if we had to say: Bring on the bad luck, lest we be taxed when good fortune smiles upon us.

Source: By TaxTALK 



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