COMMENT | The case for windfall taxes

COMMENT | Former cabinet minister and Muar MP, Syed Saddiq Syed Abdul Rahman has recently advocated in Parliament for windfall taxes to be imposed on glove manufacturers in Malaysia.

There is, predictably, a fair share of criticism against this proposal for windfall taxes. They largely fall into these narratives: (a) Why punish companies for their success? (b) Isn’t it better to allow these companies to re-invest their profits to expand and diversify the business, thereby providing more jobs? and (c) This will spook foreign investors.

Before we address these criticisms, it is important to demystify what exactly are windfall taxes.

First and foremost, windfall taxes are generally: (a) one-off, (b) imposed only upon an extremely rare historical event; (c) towards a very specific and limited industry; and (c) whereby the profits of said companies are astronomically high (in contrast to merely very high profits). It doesn’t occur every other year. In most countries, windfall taxes for a particular sector occur only once throughout the nation’s history.

It is also key to appreciate that taxes – including windfall taxes – redistribute wealth from a fortunate few to the masses, both to achieve larger long-term social good and, perhaps more importantly, to future-proof the nation through investment in education, technology and digitisation.

Although rare, there is a precedent for windfall taxes across the globe. In 2008, Sweden’s hydropower and nuclear power sectors were subjected to various special taxes due to the windfall profits generated. In 2018, Thailand introduced a 5% windfall tax for developers and landlords who gain financially from government investment in public transport. In 2020, China’s Shandong province will start levying on windfall profits earned by independent oil refiners.

Malaysia is also no stranger to windfall taxes. In 2008, one-off windfall tax of 30% was imposed on the ...