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Italy Raised Windfall Taxes on Energy Companies to Finance New Budget of $36 Billion

Industry: Oil&Gas Exploration & Production
Current: Company Performance

Russia-Ukraine war caused energy supply disruptions resulting in skyrocketing energy prices and higher profits for energy companies
Italian government planned to increase windfall tax on additional profits from 25% to 35% till the mid of 2023
The windfall tax will be levied only on energy companies’ additional profits and not on revenue

Russia-Ukraine War Hampered Energy Supply Resulting in High Energy Prices

Russia's invasion of Ukraine has hampered the global energy supply, particularly in Europe which relies heavily on Russian energy. However, European infrastructure and global supply have been able to withstand a 60% reduction in Russian gas deliveries beginning in June 2021. Furthermore Covid-19 pandemic also caused disruptions in oil and gas production, hampering the supply chain. The oil & gas production in Italy went down from 180,094 Boed (Barrels of Oil Equivalent Per Day) in 2020 to 158,105 Boed in 2021 due to the Covid-19 pandemic. European countries are looking for alternative energy sources to help alleviate energy supply bottlenecks.

Soaring Energy Prices Resulted in Sky-high Profits for Energy Companies

Profits at Italian energy companies have soared this year due to demand-supply collision caused by rising demand and energy supply bottlenecks. Energy companies have reaped significant benefits from the surge in oil and gas prices. While energy companies in Italy are enjoying significant profit growth due to rising energy prices, the citizens are suffering from the growing energy bills.

Italian Government is Planning to Levy Windfall Tax on Energy Companies’ Additional Profits

The Italian government has approved a €35 billion ($36 billion) budget law for the year 2023, which will cause a hike in the energy industry windfall tax. The additional funds raised by higher taxes are intended to assist families and businesses affected by rising energy prices. Furthermore, until mid-2023, the new budget proposed raising the tax rate on additional profits made from selling energy to 35% from the current tax rate of 25%.