Intern journalist | Dai Jingjing
With the midterm elections approaching, the U.S. CPI for May recorded its biggest year-over-year increase in 40 years. Amid voter negativity, the Democratic Party of the United States has pointed its finger at the oil and gas industry, which has made huge profits under high oil prices.
U.S. President Joe Biden slammed oil companies represented by ExxonMobil for delaying drilling and production and using profits to buy back shares at the expense of consumers.
Meanwhile, the U.S. Senate is already in discussions to impose a 21 percent profiteering tax on excess profits from oil and gas companies that earn more than $1 billion.
At the current high oil prices, Germany, the United States and other countries are still debating whether they should impose oil profiteering taxes.
From the perspective of regulating the distribution of social income and promoting social equity, all countries should formulate a reasonable collection mechanism in accordance with national conditions and levy huge profit taxes on oil enterprises.
Profiteering tax is a tax levied on eligible companies for excess or windfall profits, according to government-established standards. The oil and gas industry profiteering tax is generally referred to as the oil windfall tax, and the standard of collection is usually linked to the income and profits of oil companies.
Western countries mostly temporarily levy oil profiteering taxes during periods of high oil prices, and some countries set up long-term collection mechanisms to levy corresponding tax rates according to changes in oil prices.
Oil windfall taxes can be traced back to 1980.
During the period 1970-1980, the OPEC oil embargo and the Iranian revolution led to a sharp rise in international oil prices and triggered two oil crises. In 1980, the United States enacted the Crude Oil Profiteering Tax Act, which imposed excise duties on crude oil produced by oil companies. Depending on the type and size of the oil company, the tax rate ranges from 30% to 70%. After oil prices fell, U.S. President Ronald Reagan abolished the tax in 1998.
During the 2007-2008 oil price spike, the United States also repeatedly proposed bills to impose huge profit taxes on oil companies, but they were not passed.
European countries such as Italy also have a history of temporary oil windfall taxes.
Since March 26, 2006, China has "taxed" excess income from the sale of crude oil to domestic oil extraction enterprises in the form of "special oil revenues". The levy rate is determined by the monthly weighted average price of crude oil sold by oil extraction enterprises, and the higher the oil price, the greater the levy rate, with a threshold of $40 per barrel.
From January 1, 2015, the threshold for domestic oil special income was raised to $65 per barrel, as shown in the chart below. The non-tax revenue of the central government for special oil revenue metals shall be included in the central financial budget management.
Venezuela also passed the High Oil Special Contribution Act in 2008, which allows the government to levy 50% of the excess revenue from oil companies when the average monthly price of Brent crude exceeds $70; When the price of oil exceeds $100, the ratio rises to 60%. The policy was revised in 2013 to refine and increase the rate.
Countries such as Brazil, Nigeria and Canada have also implemented profiteering taxes on the basis of similar automatic tax rate adjustment mechanisms.
The recent huge profits of oil companies, which are dividends from high oil prices, are windfall profits and should be paid more taxes for redistribution.
Affected by the improvement of the epidemic and the economic recovery, the global demand for oil has increased, and international oil prices have been rising since the end of 2020.
Since February, the Russian-Ukrainian conflict and changes in global oil supply and demand have driven oil prices soaring. Year-to-date, crude oil prices have risen more than 60 percent, with Brent crude prices peaking close to $140 a barrel at one point.
With high oil prices, global oil companies are reaping record-breaking profits.
In the first quarter of this year, ExxonMobil's net profit was $5.48 billion, nearly doubling year-on-year. As the world's largest oil producer, Saudi Aramco had the highest net profit in the world in the first quarter of this year, earning an average of nearly 3 billion yuan per day. In May, Saudi Aramco surpassed Apple to become the world's most valuable company.
This year's profit growth of oil companies mainly comes from oil and gas sales at high oil prices, and the company itself has no significant efficiency improvement or technological innovation, and the cost of oil extraction has not been reduced, which meets the definition of "windfall profit".
The natural monopolistic nature of the Western oil industry allows oil companies to continuously extract profits from downstream consumers at high oil prices. In the case that oil prices cannot be stabilized for the time being, the government appropriately collects huge profit taxes to ensure the healthy development of the market economy.
The imposition of windfall taxes and the redistribution of wealth under the current high oil prices also help to promote social equity.
Behind the high profits of oil companies, consumers and households are bearing high energy prices, and inflation in various countries has reached unprecedented levels.
The average price of gasoline in the United States exceeded $5/gallon for the first time, and gasoline prices in many European countries, including the United Kingdom, also reached record highs.
At the same time, oil majors are not spending profits on energy transitions or corporate social responsibility.
According to investment bank RBC Capital Markets, oil giants such as BP, Shell and ExxonMobil plan to buy back $41 billion in shares to give back to shareholders.
It is only natural for the government to intervene in this situation.
In fact, several European countries have already begun to levy huge profit taxes.
On May 26, local time, the British Chancellor of the Exchequer announced that a new 25% tax would be imposed on the profits of oil and gas companies, raising about 5 billion pounds (about 42.6 billion yuan) in the next 12 months.
The Hungarian government also announced on the same day that it will impose a total of 800 billion HUF (about 14.4 billion yuan) of excess profit taxes on enterprises in the financial, energy and other industries this year and next year.
After energy prices rose last year, Bulgaria, Italy, Romania and Spain have already begun to impose huge profit taxes.
These tax revenues will be used directly to alleviate energy poverty and fight inflation. For example, the UK levy a windfall tax that funds a newly proposed welfare package, reduces some of the energy bills of UK households, and provides subsidies for families with less resilience.
The industry's long-term criticism of the profiteering tax is that the increase in tax revenue will discourage oil companies from production and reduce investment in the oil and gas industry, which is not conducive to the development of new technologies and the easing of high oil prices.
However, as long as countries formulate reasonable rules for the collection of profiteering taxes in accordance with their own welfare systems and degree of redistribution, they will not overly discourage the exploitation and production of the oil and gas industry.
The UK's introduction of the profiteering tax is accompanied by a new investment subsidy scheme to encourage companies to reduce taxes through new oil and gas investments. The actual effect of the policy remains to be seen, but it shows that the government has the ability to stabilize oil and gas production while increasing taxes.
In addition, investors invest based on the prediction of the industry, and when the collection and termination of the profiteering tax are clear, it will help investors to make accurate judgments and adjust investment strategies.
From this point of view, the special income system of China and Venezuela is more conducive to the stability of industry investment than the temporary profiteering tax collection.