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Are we adding fuel to fire? A Case Study of Green Tax on Vehicles in Kerala

With the underlying principle of “polluter pays”, green tax was introduced in 2021 by the Government of India as an attempt to reduce the number of older vehicles on the road, thereby pushing people towards buying newer, less polluting vehicles. The amount of tax levied varies from state to state depending on the pollution levels, and the type of vehicle and fuel. According to the guidelines, green tax will be levied on transport vehicles older than 8 years at the renewal of their fitness certificate, and personal vehicles at the time of renewal of their registration certificate after 15 years. On the other hand, vehicles like strong hybrids, electric vehicles and alternative fuel vehicles (LPG, CNG), and farming sector vehicles such as harvesters, tractors and tillers  are to be exempted from the tax.

Kerala first introduced green tax in the state effective from January 1, 2017. It was made applicable to transport vehicles above the age of 10 years and non-transport vehicles older than 15 years. The latter was increased by 50% in the state government budget of 2022-23, which was expected to generate an additional revenue of around INR 10 crore.

As per the data collected by the Motor Vehicles Department of Kerala, there are 14.5 lakh non-transport and 7.25 lakh transport vehicles in the state which are more than 15 and 20 years old respectively, making  the revenue generated from green tax very high for the state – almost 3.6 crores have been collected in the first 3 months of 2022, whereas Rs 8.42 crore was collected in 2021 and Rs 6.38 crore in 2019.

From the onset, it seems as though the disincentive through green tax levies is a step in the right direction to dissuade people from using older and polluting vehicles, thereby achieving lower vehicular pollution in the country as a whole. But, will the green tax really push people towards buying a new vehicle or will it turn out to be just another payment regulation without affecting behavioural change? To answer this, there are a few practicalities that we can consider. 

The per capita income of Kerala at the constant price was around 2.36 lakhs in 2021-22 which was a big jump from the per capita income in 2020-21 which stood at 1.46 lakhs. Car sales in Kerala in turn have gone up in the past years, albeit without the guarantee that the older vehicles would be phased out. Although the primary aim of the government is to reduce emissions by making people shift to newer cars, it has become just another revenue generating source for them which reduces the intensity of the purpose it aims to serve. 

Another thing to consider is whether the revenue generated would actually be used towards reducing carbon footprint in the country. According to the Ministry of Road Transport and Highways, commercial vehicles constitute about 5% of the total vehicle fleet in the country but contribute to almost 65-70% of the total vehicular pollution. Even though the older fleet of vehicles manufactured before the year 2000 account for only 1% of the total fleet they contribute around 15% to the total pollution caused by vehicles and they also pollute 10-25 times more than modern vehicles. This amounts to more than 4 crore vehicles being liable to pay the green tax as they are more than 15 years old, out of which  more than 50% exceed 20 years of age. Keeping all this in mind, it is worth considering whether it is more effective to incentivise scrapping of vehicles in bringing about change in the total fleet emissions in the country or just levy a tax on old vehicles with the hope that people will be eventually nudged to adopt sustainable options for their environment.

Featured Image source: Kerala Kaumudi

Blog written by Latika Adlakha Research Intern at Centre for Public Policy Research.

Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.

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