No ra­tio­nale for SC cess, and tax pol­icy scle­rotic

The Financial Express - - FRONT PAGE -

charge (ECC) has been paid can the ve­hi­cles be reg­is­tered. While the court asked the Cen­tral Pol­lu­tion Con­trol Board to open a sep­a­rate bank ac­count in a pub­lic sec­tor bank to re­ceive the green levy from big diesel car and SUV mak­ers/deal­ers/buy­ers, an­a­lysts said man­u­fac­tures were most likely to pass on the cost of ECC to con­sumers.

While automobile man­u­fac­tur­ers cel­e­brate the Supreme Court lift­ing the ban on reg­is­ter­ing large diesel ve­hi­cles—above 2,000 cc—in the cap­i­tal on pay­ment of a green cess, they have rea­son to be wor­ried since the dis­cus­sion in the court also cen­tred around the pos­si­bil­ity of ex­tend­ing the move to smaller diesel ve­hi­cles at a later date. That may or may not hap­pen, but what’s not clear why SC first banned the reg­is­tra­tions and later re­moved this. The IIT-Kan­pur re­port, which is the most au­thor­i­ta­tive re­port be­fore SC, clearly says that ve­hi­cle pol­lu­tion ac­counts for 9% of all PM10 pol­lu­tion in the cap­i­tal and, of this, four-wheel­ers ac­count for a tenth—while the share of diesel would be even less, it is im­por­tant to note that large diesel ve­hi­cles of more than 2,000cc are a very small frac­tion of the to­tal; so, if diesel cars are, at all, to be banned, it should be the smaller ones that com­prise 70-80% of the pop­u­la­tion—ex­tend­ing the logic, it made lit­tle sense to re­strict the chief min­is­ter of Delhi’s ill-ad­vised odd-even scheme to only cars since they are far out­num­bered by two-wheel­ers.

Apart from the is­sue of the rel­a­tive vol­umes sold of each type of car, as the govern­ment af­fi­davit in the SC brought out clearly, there is lit­tle cor­re­la­tion be­tween the size of an engine and pol­lu­tion lev­els— a Tata Mo­tors’ Land Rover with a 2,933cc engine emits 0.019 gm/km of par­tic­u­late mat­ter (PM) ver­sus 0.029 for a 1,493cc Mahin­dra XUV500. Which is why, if the gover nment is at all se­ri­ous about curb­ing pol­lu­tion, it has to move to look­ing at emis­sions and not just engine size. Also, emis­sion lev­els are a func­tion of the qual­ity of the fuel—PM lev­els used to be 0.25 gm/km when In­dia was at BS-I lev­els in 1999 and this has fallen to 0.06 now un­der BS-IV—by the time In­dia has BS-VI in 2020, it will be 0.0045, or the same across cars of all fu­els.

While SC ap­pears to have ig­nored this ev­i­dence and plumped for a higher tax­a­tion on large diesel ve­hi­cles, it would do well to keep in mind In­dia’s almost scle­rotic pol­icy to­wards diesel. Even to­day, large diesel cars pay a much higher ex­cise duty, so it is not clear just what the ex­tra green cess is to achieve. While smaller ve­hi­cles pay an ex­cise duty of 12.5%, diesel ve­hi­cles of over 1,500 cc pay 24% and those with more than 2,000 cc pay 27-30%. There is an in­fra­struc­ture cess of 1% on top of this, which rises to 2.5% for small diesel cars and 4% for big­ger ones; reg­is­tra­tion charges for diesel cars are also 25% higher than for petrol in Delhi. If the­gov­ern­ment­want­ed­todis­cour­agediesel­byget­tin­guser­sto­pay­more, that would still be un­der­stand­able. Yet, the taxes on dif­fer­ent types of fuel tell an en­tirely dif­fer­ent story. While an ex­cise duty of R21.48 per litre is charged­for­petrol­bythe­cen­tral­go­v­ern­ment,tha­tondieselisonly R17.33. It gets worse at the level of the states. Big states like Ut­tar Pradesh charge a VAT of 34.22% on petrol ver­sus a mere 20.75% on diesel—Gu­jarat and Odisha have no dis­crim­i­na­tion. Surely if SC wants to dis­cour­age diesel, it needs to pass some rul­ing on this odd pol­icy as well?

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