Green Tax Last Updated : 13 Jul 2020

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

What is Green Tax?

Green tax, or pollution tax or environmental tax, as it is also called, 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 in a cost-effective manner by encouraging behavioural changes in households and firms that need to decrease their pollution.

Pollution is considered as the cost of creating products that is not borne by the producer / polluter. The adverse effects of pollution, such as climate changes, impaired health and noxious odours 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 authorised technology standards have the potential to reduce pollution, but the costs involved may be rather high. For instance, increasing gasoline tax in an effort 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 due to the fact that 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 amount 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 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.

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