Auto Sector Update - Government proposes green tax for older vehicles By Motilal Oswal
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Government proposes green tax for older vehicles…
…and scrapping of government/PSU vehicles
* The Ministry of Road Transport and Highway (MORTH) has approved levy of a ‘green tax’ on public/personal vehicles older than eight/15 years. The proposal will now go to states for consultation before it is formally notified. Click here for the press release.
* Transport vehicles older than eight years could be charged a green tax of 10- 25% of road tax at the time of renewal of the fitness certificate. Personal vehicles would be charged a green tax after 15 years.
* Public transport vehicles, such as city buses, would be charged a lower green tax. A higher green tax (50% of road tax) is proposed for vehicles registered in highly polluted cities. A differential tax is proposed for different fuels (petrol/diesel) and type of vehicle.
* Vehicles like hybrids, electric, and those running on alternate fuels like CNG, ethanol, LPG, etc. are to be exempted. Vehicles used in farming, such as tractor, harvester, tiller, etc. would also be exempted.
* Revenue collected from the green tax would be used for tackling pollution.
* The Centre has also approved scrapping of over 15-year old vehicles owned by government departments and PSUs with effect from 1 Apr’22. The Central government and PSU collectively own an estimated ~600k PVs (no estimates on over 15-year old vehicles). In Nov’17, the government planned to convert its fleet into electric vehicles over a five year period. We believe that EVs would replace scrapped PVs (and not benefit MSIL currently).
* Our view: The green tax would raise the cost of doing business for small fleet operators operating over eight-year old CVs. However, the cost rise wouldn’t be material enough to force them to move to younger vehicles. While the green tax may not spur demand for new vehicles on its own, it can supplement the expected scrappage scheme by deterring purchase of older vehicles and incentivizing scrapping of old vehicles. The expected scrappage policy, along with the green tax, can be effective in spurring demand for new vehicles.
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