Green Tax

Green tax is also called pollution tax or environmental tax and is the tax levied on all the goods that cause environmental pollution. It is believed that charging taxes on emissions will help bring about changes in firms and households.

As per the Latest update, the Central Government has proposed to charge a green tax on the renewal of registration certificates of personal vehicles after 15 years. The center has also proposed a lower green tax for commercial vehicles and a higher green tax for vehicles plying in highly polluted cities across the country.

What is Green Tax?

Green tax is also called pollution tax or environmental tax, 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 by encouraging behavioral changes in households and firms that need to decrease their pollution.

Pollution is considered as the cost of creating products that are not borne by the producer/polluter. The adverse effects of pollution, such as climate changes, impaired health, and noxious odors are forms of an impaired environment borne by everyone whether or not they contribute towards pollution. Green tax is an environmental tax that aims at ensuring that polluters are duly punished for the activities that deter the environment by charging them a penalty for the harm caused to others. Charging direct taxes to perpetrators on emissions is an economical means to provide them with an incentive to lower their pollution to the extent where further reduction could potentially turn out to be more expensive than paying the tax itself.

Indirect taxes, like taxes on alternative policies or related goods such as authorized technology standards, have the potential to reduce pollution, but the costs involved may be rather high. For instance, increasing gasoline tax 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 pollution control equipment compulsory for all drives will not encourage them to drive less.

Taxes charged on direct emissions are cost-effective because 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 that 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 number 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).

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:

Two wheelers Rs.2000
Diesel vehicles Rs.3500
Petrol vehicles Rs.3000

The tax will have to be paid every five years.

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

Autorickshaws Rs.750
Light good vehicles Rs.2500
Six-seater taxis Rs.1250
vehicles with more than 7500 kgcapacity 10% of annual tax
Service vehicles 2.5% of annual tax
Contract buses 2.5% of annual tax
Tourist buses 2.5% of annual tax

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 the 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.

News About Green Tax

  • Approximately 4 crore vehicles more than 15 years old will have to pay green tax

    According to The Ministry of Road Transport and Highways, more than 4 crore vehicles will have to pay green tax as they are more than 15 years old. This will be charged when the Registration Certificate is renewed after 15 years. Out of the 4 crore vehicles, more than 50% exceed 20 years of age. Karnataka has the maximum number of such vehicles at 70 lakhs. According to the government's new scrappage policy, green tax will also be charged for transport vehicles that are more than eight years old. This will be applicable when the fitness certificate is renewed. It will be 10% to 25% of the road tax. The vehicles that are exempt from green tax are electric vehicles, strong hybrids, LPG vehicles, and those that run on ethanol and CNG.

    29 March 2021

  • Govt. approves proposal to levy Green Tax on old vehicles

    The central government has approved a proposal to levy ‘Green Tax’ on old vehicles which are considered to be polluting the environment. As per the proposal, transport vehicles which are older than 8 years could be charged 10 to 25 percent of road tax at the time of renewal of fitness certificate. For personal vehicles, the tax would have to be paid at the time of mandatory renewal of registration certificate after 15 years. The tax has been proposed to dissuade people from using vehicles that damage the environment as well as motivate them to switch to new vehicles and reduce overall pollution level. A press release by the Ministry of Road Transport and Highways states that the revenue collected from the Green Tax will be kept in a separate account. It shall be used to tackle pollution and setting up state-of-art facilities for emission monitoring in states.

    In addition to that Transport Minister Nitin Gadkari also approved a policy of deregistration and scrapping of vehicles which are above 15 years in age that are owned by government departments and PSUs. This policy is slated to come into effect from 1 April, 2022. It needs to be mentioned here that a broader scrappage policy for commercial vehicles is likely to be announced during this year's budget.

    27 January 2021

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