Large organizations are always interested in maximizing of profits while minimizing any arising losses. Equally, long-run costs are targeted with effective analysis on the returns especially with facilitated output decisions. Economies of scale point to the relative importance associated with constant and returns of investment while not degenerating on the movements of equilibrium. However, operations have to be accounted for within an equal environment as with other companies and industry. The oil and gas industry has been exemplified on the operation analysis especially when dealing with the large sums of profits gained at the expense of costs to the consumers. Exxon oil Company for example registered extremely large profits in the years past while the prices have been subjected to consumer strain for a long time. Oil companies should not be regulated nor subjected to a windfall tax.
Taxation of oil companies only serves to push the prices higher. The leveled tax and windfall suggested on the oil and gas organization makes it harder to incentives capital investment. The production costs and availability of the important commodity in oil requires reasonable and regulated franchising within the industry. Key companies responsible in the production, fixation of prices according to demand and supply are integral to the process. Regulation or subjection to windfall tax will increase the production costs, operating minimums for the companies and therefore translate to increased prices at the pump. It will eventually return to consumer agony, as the prices will have to fetch profitable ventures to the companies in return (Harrison, 2008). Unreasonable levels will be attained in terms of marginal profitability from the proceeds and this will affect the consumers directly in several ways. Competition and confiscated windfall profits will increase the companies’ outlay and push the prices higher.
Regulation and subjection to windfall tax will create cartel-opoly. Majority of the oil and gas producing companies are alluding to the OPEC nations. They are established and multi-faceted within several nations across the world. In addition, they also serve interests to national companies that avail the oil and gas top consumers on local demands. Therefore, the large oil companies are responsible for controlling the oil prices according to demand and supply of each target customers. There is established rivalry and competition among the organizations especially in contact with respective national firms that require the commodity from them. Therefore, by regulating these companies and subjecting them to windfall taxation, lesser and lesser oil will be produced in accordance to increased costs. Hassett and Viard (2012) argue that these large oil companies will increase their cartel-opoly ability to incentive other foreign companies. The consumers will suffer the consequences in terms of prices, amounts, and availability in the exchanges.
Regulation and subjection to windfall tax increases foreign reliance. Wage and price controls of large oil companies like Exxon require stringent measures and process controls. It is a complicated process of determining the amounts and levels of windfall taxation to such organizations. All stakeholders within the companies have to fill enormous and onerous taxation forms in terms of respective liability and subjected interests. The payments are then placed against deductible incomes while other companies enjoy lower burdens under the regulation. Compounding this move is the reduction of effective net yield of the commodity to the country while affecting the companies’ operational basis, income tax, and return investment. The logical effect sees the companies sever ties with the production demands and in turn, reliance on foreign firms increases forthwith. The resultant measure will only increase the prices, lower business entity environments for new companies while adding pressure back to the consumers in terms of meeting the deficits.
Regulation and subjection to windfall taxation leads to misallocation of capital investment. The proposed measure of regulation is targeted at the oil companies while under scrutiny for the industry. It is very different from reality especially when the economy is diverse in terms of commodities, services, and production. Subba 92010) notes that targeting the oil and gas industry favors one over the other and leads to capital investment being shifted as redistribution of capital is placed on the less effective uses. Since the oil and gas industry is under the energy sector, capital investments will be shifted to other entities due to the operation costs, working measures and strict environment. Investors with the large oil companies will increase their efforts in targeting other lesser-regulated markets in the world. In return, increased prices and availability of the important commodity will affect the different consumers and industries especially due to the evident policies and taxation measures.
companies should not be regulated nor subjected to a windfall tax. Economies of
scale point to the relative importance associated with constant and returns of
investment while not degenerating on the movements of equilibrium for the large
oil companies. Thus, increasing windfall taxation, regulation, and stringent measures
will have a negative impact back to the consumers and nation. Increased foreign
reliance, misallocation of capital investment, creation of cartels and
uncontrollable pricing will be the translated effects of such directives.
Alternative control solutions should be sought.
Harrison, E. (2008). The Windfall Profit Tax: Bad Idea. Credit Writedowns. Retrieved from https://www.creditwritedowns.com/2008/04/windfall-profit-tax-bad-idea.html
Hassett, K. & Viard, A. (2012). Big Oil, Targeted Taxes, and the Rule of Law. American Enterprise Institute. Retrieved From https://www.aei.org/publication/big-oil-targeted-taxes-and-the-rule-of-law/
Subba, R. P. (2010). Strategic management. Mumbai, India: Himalaya Pub. House.