Impact analysis of a windfall tax on liquid fuels

Genesis was commissioned to conduct foundational research for a large energy company in one of the most significant policy debates in recent years. This related to the possible implementation of a windfall tax on liquid fuels in South Africa.

The Minister of Finance had established a task team to report on windfall profits generated in the liquid fuels industry and on whether a windfall tax should be imposed on such profits.

Genesis provided a critical assessment of the discussion document produced by the task team. The project team found that the proposed tax would not uphold basic principles of fairness and equity, and would also have a number of serious and unintended consequences.

Amongst these were the diversion of resources, the use of imported inputs and a negative impact on investment and investor confidence. Finally, the report also demonstrated that international experience with windfall taxes did not provide an encouraging case study.

The proposed tax was ultimately abandoned by government.