By Alex Kimani of OilPrice.com
The Finnish government has announced on Thursday that it has proposed a temporary windfall tax on profits from the country’s electricity companies as part of a European Union response to soaring power costs. The proposed 30% tax would apply to any profits exceeding a 10% return on capital in 2023, with the government estimating it could bring in between 500 million and 1.3 billion euros ($533 million-$1.9 billion).
If the Finnish government goes ahead with its plans, it will join Germany and the UK as the other EU members that have introduced a windfall tax to energy and power companies. Starting December 1, Germany introduced 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.
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, former 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, U.S. President Joe Biden has threatened to introduce a windfall tax for oil and gas companies as they continue to post record profits.