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Well-intentioned car tax but miles to go

New Delhi, April 9: The Union urban development ministry has proposed three new taxes on private vehicle owners: on vehicle purchases, petrol and insurance.

The aim is to fund public transport in cities and deter the use of private vehicles

The Rs 40,000 crore that the ministry proposes to raise annually through the “green surcharge”, “green cess” and “urban transport tax” is to go to a national urban transport fund that will finance transport schemes.

Urban development secretary Sudhir Krishna, however, told The Telegraph that the proposals were still a long way from being implemented.

“We have kick-started a thought process, but it has to be cleared by the Planning Commission and approved by the finance ministry. So, it has to travel some distance before it can become a reality,” he said.

The proposed green surcharge will be Rs 2 per litre of petrol and is expected to generate Rs 3,100 crore. The committee has not proposed any surcharge on diesel.

“Diesel in India has its multiple uses and it is difficult to segregate diesel sold to personalised vehicles,” says the report of the sub-group on financing urban infrastructure, headed by Krishna and including economist Rakesh Mohan.

The proposed green cess will be an additional tax on vehicle insurance. “Several public and private sector enterprises in India provide insurance to vehicles at three per cent of the annual insured value, both for cars and two wheelers. It is proposed that an additional four per cent of the vehicle’s insured value shall be collected as green cess,” the report says.

This is expected to yield Rs 18,000 crore in the first year.

The urban transport tax will be imposed on buyers of new vehicles. This will take the form of a 7.5 per cent additional tax on petrol vehicles and an additional 20 per cent tax on personalised diesel vehicles. It’s expected to mop up about Rs 18,900 crore a year.

The proposals have been prompted by the ministry’s estimates of the huge fund requirement for the urban transport sector over the next five years — nearly Rs 200,000 crore in four key sections alone. (See chart)

Krishna said: “The government can’t shoulder this burden alone. We have to have innovative measures to get funds for urban infrastructure.”

Among India’s 423 Class I cities, only 65 now have a formal city bus service. In 2006, only 20 cities had a bus service. Among cities that have upgraded their buses and introduced bus services, most did so by using the funds available under the Jawaharlal Nehru National Urban Renewal Mission.

The lack or poor state of public transport means that only 22 per cent of urban Indians are regular bus users. In contrast, the figure is 49 per cent in lower middle-income countries such as the Philippines, Venezuela and Egypt and 40 per cent in upper middle-income nations such as South Africa, South Korea and Brazil.