Green tax

Ministry of Road Transport & Highways

Why in news?

The Union Minister for Road Transport and Highways Sh. Nitin Gadkari has approved a proposal to levy a “Green Tax” on old vehicles which are polluting the environment. The proposal will now go to the states for consultation before it is formally notified. 

What is Green Tax?

• Green tax is also called as pollution tax or environmental tax and is the tax levied on all the goods that cause environmental pollution. It is believed that charging tax on emissions will help bring about changes in firms and households.
• Green tax, or pollution tax or environmental tax, as it is also called, is an excise duty on goods that cause environmental pollutants. According to Economic theory, charging taxes on emissions that cause pollution will lower environmental impairment in a cost-effective manner by encouraging behavioral changes in households and firms that need to decrease their pollution.
• Indirect taxes, like taxes on alternative policies or rated goods such as authorized technology standards have the potential to reduce pollution, but the cost involved may be rather high. For instance, increasing natural oil tax in an effort to lower environmental damage caused by automobile emissions provides no incentive to drivers to ensure that the pollution control equipment in their car is maintained, and making polluting control equipment compulsory for all driver will not encourage them to drive less.
• Taxes charged on the direct emissions are cost effective due to the fact that they make sure that those who need to start working towards pollution reduction. Firms and households that find pollution reduction expensive will continue to cause pollution and will have to pay more tax as a result while firms and households find it less expensive can cut lower their pollution and thus lower their taxes.

Another fine alternative to emission taxes is a tradeable permit scheme. It is as cost-effective as the levy of direct taxes as these schemes reduce the amount of permissible emissions by issuing a certain amount of emissions permits. These permits can then be traded among polluters. The permit price is similar to tax in the sense that polluters who find it expensive to lower their emissions will instead purchase permits that allow them to continue emitting pollutants while those who can reduce emissions at a lower price can do so before putting up their unused permits for sale.

The distributional effects that tradable permit schemes may have are different in comparison with pollution taxes, but will depend on the permits and whether or not they are given away or auctioned off (on what basis and to whom).

The main principles to be followed while levying the Green Tax are :

• Transport vehicles older than 8 years could be charged Green Tax at the time of renewal of fitness certificate, at the rate of 10 to 25 % of road tax;
• Personal vehicles to be charged Green Tax at the time of renewal of Registration Certification after 15 years;
• Public transport vehicles, such as city buses, to be charged lower Green tax;
• Higher Green tax (50% of Road Tax) for vehicles being registered in highly polluted cities
• Differential tax, depending on fuel (petrol/diesel) and type of vehicle;
• Vehicles like strong hybrids, electric vehicles and alternate fuels like CNG, ethanol,LPG etc to be exempted;
• Vehicles used in farming, such as tractor, harvestor, tiller etc to be exempted;
• Revenue collected from the Green Tax to be kept in a separate account and used for tackling pollution, and for States to set up stateof-art facilities for emission monitoring

The benefits of the “Green Tax” could be :

• To dissuade people from using vehicles which damage the environment
• To motivate people to switch to newer, less polluting vehicles
• Green tax will reduce the pollution level, and make the polluter pay for pollution.

The Minister also approved the policy of deregistration and scrapping of vehicles owned by Government department and PSU, which are above 15 years in age. It is to be notified, and will come into effect from 1^st April, 2022.

It is estimated that commercial vehicles, which constitute about 5% of the total vehicle fleet , contribute about 65-70% of total vehicular pollution. The older fleet, typically manufactured before the year 2000 constitute less that 1 % of the total fleet but contributes around 15% of total vehicular pollution. These older vehicles pollute 10-25 times more than modern vehicles.

Green Tax on Vehicles

Green tax on vehicles in India is a relatively new trend, but RFID tags are being given and CCTV cameras have been deployed at border entry points in Delhi to ensure that commercial vehicles that enter the city will be monitored for emissions. ECC (Environmental Compensation Charge) will be imposed on pollutants depending upon the vehicle’s size. The original fines levied by the government ranged between Rs.700 and Rs.1300 for two-axle trucks and three- and four-axle trucks respectively, but charges have doubled since with light vehicles and two-axle trucks urged to pay Rs.1400 and three- and four-axle trucks paying Rs.2600 every time they pass through the city.

Green Tax for Cars and Two Wheelers:

The government of Maharashtra decided to impose a green tax on private vehicles that are older than 15 years, while commercial vehicles used for over eight years will also be subject to the tax. The tax applicable to private vehicles older than 15 years are as follow:

The tax will have to be paid every five years.

The tax applicable to commercial vehicles older than eight years is as follows:

Green tax or Environment Compensation Charge was introduced in October 2015, in Delhi. Revisions made to the original document ever since are based on recommendations from the Supreme Court. There may be a ban on registration of diesel vehicles that come with an engine capacity of more than 2000cc. The government of Delhi is also considering the extension of Section 194 of the Motor Vehicles Act which does not permit the entry of commercial vehicles to Delhi at particular times. As per this section, the government could levy a fine of a minimum of Rs.2000 for violating this rule.