India is one of the most polluted countries in the world. The Guardian reported a study revealing the premature death of almost 17 lakh people as a direct or indirect result of pollution in 2019.
Therefore, in a bid to cut down on vehicle emissions and pollutants, the Indian Government introduced a specialized taxation system, known as green tax.
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.
Green taxes, also known as environmental taxes or eco-taxes, are taxesimposed on activities that pollute or cause harm to the environment.
Green taxes are based on the “Polluter Pays principle” in which pollution costsare borne by the polluter and reflected in the prices of their goodsand services.
A carbon tax is an example of a green tax because it penalizes industries and organizations that emit carbon dioxide, a gas that is harmful for the atmosphere.
Other examples of green taxes are the gas guzzler tax, applicable to new cars that do not meet government-prescribed fuel efficiency standards in the United States, and noise taxes on institutions that exceed sound limits.
Proponents of green taxes cite their efficacy in reducing pollution levels, increased government revenueand development of new green technologies as their benefits.
Critics of green taxes point to the increased cost of doing business for certain industries and the absence of standardized definitions and implementations for such taxes as reasons to remain wary of the taxes.
What is Environmental Taxation?
People often think of taxation and the environment as two entirely different worlds—two circles that do not intersect. Governments impose taxes to raise the revenues they need to operate; governments get involved in environmental matters to protect the public interest. However, the two circles do intersect. Governments can—and do—use tax policies to achieve environmental goals.
Environmental taxes come in many different forms, but as a general matter environmental tax measures either impose a tax cost on some product or activity that is environmentally damaging, or they give a tax benefit to some product or activity that is environmentally beneficial.
For example, the federal government imposes a significant excise tax on ozone-depleting chemicals, and it offers a tax credit to people who buy electric vehicles. In both instances, the tax code has altered the “price” of the commodity, injecting an important signal into the economic calculations that affect behavior.
All types of tax systems—income tax, estate tax, property tax, and excise tax—potentially can incorporate environmental tax measures, and all levels of government—local, state, and federal—can consider environmental taxes. Environmental taxes will not necessarily replace traditional environmental regulation. In some instances, they may complement regulation, and in others they may provide an option when regulation is not appropriate.
Environmental or green taxes include taxes on energy, transport, pollution and resources. Energy taxes are taxes on energy products and electricity used for transport, such as petrol and diesel, and for other purposes, such as fuel oils, natural gas, coal and electricity used in heating.
Due to the emissions from their outdated engines, which pollute the environment, older vehicles in the country are subject to a Green Tax. As a result, the Green Tax is a fixed fee that owners of vehicles must pay on their outdated cars.
→ This tax applies to both household and commercial vehicles. The amount of the Green Tax varies by state and depends on the type of car as well.
→ Older cars negatively impact the environment by releasing gasses or smoke. This also significantly increases pollution, large trucks transporting goods from one place to another also add to air pollution. Since the Indian government has placed a Green Tax on older vehicles, it is imperative to limit their use.
→ A higher Green Tax is applicable to vehicles registered in heavily polluted regions like Delhi.
→ The Green Tax, implemented to lessen pollution, only applies to gasoline and diesel vehicles. It does not apply to vehicles that run on electricity, compressed natural gas, or ethanol.
→The government uses the funds raised from the Green Tax to construct facilities for measuring emissions. The Green Tax should encourage the country’s people to switch to cleaner vehicles.
Green taxes are examples of Pigouvian taxes. Such taxes are meant to penalize individuals or industries that make goods or have production processes that cause harm to society.
Pigouvian taxes internalize the negative externality of the adverse effects of pollution on the environment.
By paying taxes in proportion to the amount of pollution they cause, companies and industries absorb or internalize the harm they are causing to their surroundings.
In the process, green taxes inflate production costsfor such industries.
Higher prices on the goods will have the effect of discouraging consumers from purchasing them and further reducing their impact on pollution.
Duties on fossil fuels have been around since the beginning of the 20th century. Taxes on purchases of cars and gas also helped governments around the world to earn revenue.
But these fiscal instruments were indirect forms of taxation. The movement towards a direct form of green taxes began in the 1970s, when environmental concerns gained public spotlight.
The prevalence of energy-intensive economies powered by fossil fuels, however, made it difficult for governments to take comprehensive action against polluting industries.
Finland was the first country in the world to propose a carbon tax in 1990. Sweden and Denmark followed a year later.
Currently, there are 16 countries in Europe which charge a tax on carbon from polluting industries.
Some countries, like France, have extended the conceptual framework of green taxes to include other forms of pollution, such as noise pollution by levying a noise tax on commercial and non-commercial airport operators taking off from its busy airports.
Green taxes can be applied to a variety of polluting instruments and industries. Some of the most common ones are:
The government imposed a green levy on vehicles to discourage people from using older vehicles that create a lot of pollution. This would contribute to lowering overall pollution levels in the environment. The tax revenue collected by the government would also be used to battle pollution levels through the use of clean technologies. Long term, the green tax can help reduce considerable levels of pollution created by vehicles.
Green taxes, also known as environmental taxes or eco-taxes, are fiscal policy measures imposed by governments to promote environmentally friendly behavior and address environmental issues. These taxes are typically designed to internalize the external costs associated with certain activities, products, or services that have negative environmental impacts.
The primary objectives of green taxes are to:
Encourage Sustainability: Green taxes are intended to incentivize individuals, businesses, and industries to adopt more sustainable practices, reduce pollution, and conserve natural resources. By taxing environmentally harmful activities or products, governments aim to make them less economically attractive while encouraging alternatives that have a lower environmental impact.
Generate Revenue: While the primary purpose of green taxes is to influence behavior, they can also generate revenue for the government. This revenue can then be reinvested in environmental protection initiatives, clean energy projects, or other programs aimed at mitigating environmental damage.
A green levy is a tax imposed by a government on sources of pollution or carbon emission. A green levy is aimed at discouraging the use of inefficient sources of energy and encouraging the implementation of environmental-friendly alternatives. The term is most commonly used in relation to a tax on fuel-inefficient vehicles.
Common examples of green taxes include:
Carbon tax: Imposed on the carbon content of fossil fuels, carbon taxes incentivize the reduction of greenhouse gas emissions by making carbon-intensive activities more expensive.
Congestion charges: Levied in urban areas to reduce traffic congestion, congestion charges encourage the use of public transportation and reduce air pollution.
Landfill taxes: These taxes are imposed on waste disposal in landfills, encouraging waste reduction, recycling, and responsible waste management practices.
Plastic bag taxes: Often applied at the point of sale, these taxes discourage the use of single-use plastic bags and promote reusable alternatives.
Pigouvian taxes: Named after economist Arthur Pigou, these taxes are designed to correct market failures by internalizing external costs. For instance, taxing activities that produce pollution or negative externalities.
Green taxes can be an effective tool in achieving environmental goals and addressing climate change by shifting economic incentives towards more environmentally friendly and/or sustainable practices. However, they should be carefully designed to avoid disproportionately burdening low-income individuals or industries and to ensure that the revenue collected is used for environmentally beneficial purposes.
When it comes to vehicles, both personal and commercial variants are liable to pay such taxes. Furthermore, the green tax in India is only applicable to diesel and petrol cars or bikes. If you own an electric or CNG vehicle, you are not liable to bear such taxes.
The norms for green tax liability differ based on whether one is driving a personal or commercial vehicle. Here are the rules regarding the same –
Commercial Vehicles – Green tax on vehicles is applicable only if the concerned commercial car or two-wheeler is more than 8 years old.
Personal Vehicles – You are liable to pay a vehicle green tax on your bike or car if the same is older than 15 years.
Keep in mind that the green tax is usually charged as a percentage of a state’s road tax. Also, green tax for cars and bikes are liable for payment when renewing that particular vehicle’s RC or registration certificate.
Simply put, the revenue generated through green tax for old vehicles would help in facilitating specialized pollution or emission monitoring stations. These stations would aid in the control of air pollutants significantly.
What Is Green Tax for Cars and Other Vehicles?
Green tax is a form of excise duty on any goods or objects causing the dispersal of pollutants. It is also referred to as environmental or pollutant tax.
Green tax for cars, bikes and other vehicles was introduced in a bid to discourage owners from driving older vehicles. These older models often have increased emission levels, resulting in the addition of considerable pollutants to the environment.
Acquiring a basic knowledge about what green tax is can be highly beneficial for motor vehicle owners in India.
Given the quickly deteriorating state of our environment, the government has decided to take action to reduce pollution levels. The Green Tax, which levies a fee on vehicles that don’t meet specific requirements, is one such measure. The Indian government is contemplating imposing a green tax on vehicles at the time of renewal of their registration documents. The owner will therefore be liable for any environmental harm. Over-eight-year-old commercial and more than 15-year-old privately owned vehicles will be subject to vehicle green tax.
There is a Green Tax imposed on those who drive polluting vehicles. Old cars with older motors are more likely to generate heavy pollution. The Green Tax acts as a behavioral restraint on people who continue to ignore global warming and drive polluting vehicles.
The tax is a tool for encouraging people to upgrade to more ecologically friendly technology or, at the very least, vehicles with a more negligible impact. Numerous companies are currently developing two- and four-wheel vehicles with reduced pollution levels. Sales of electric scooters are rising as more people realize how important it is to transition to better forms of transportation. The Green Tax initiative seeks to promote and facilitate scooter users’ transition to greener models.
The amount of the green tax for cars and other vehicles may differ depending on the state in which you reside.
→ Government mandates that owners of commercial cars pay a Green Tax that can be between 10% and 25% of their unpaid road tax obligations. For instance, if their road tax is INR 6000, the highest Green Tax would be INR 1500.
→ Private vehicles may have to pay up to 50% of their required road taxes as green taxes. For instance, if the road tax is INR 6.000, the Green Tax could be as much as INR 3,000.
→The exact Green Tax rate depends on how much pollution there is in your residential city. The car green tax is likely to be levied at the highest rates on residents of urban regions like New Delhi and Bihar.
How to Pay Green Tax Online?
The government of India has made it easy for citizens to pay green tax payments. Vehicle owners can pay their green tax by visiting the official VAHAN website and following the simple steps outlined below:
Step 1: Log in to the Vahan website with your credentials.
Step 2: On the website, enter your vehicle registration information.
Step 3: Select ‘Pay Your Tax’ and input your phone number.
Step 4: Complete the OTP verification and select the relevant tax option.
Step 5: Pay any outstanding green taxes using online payment methods.
When your payment is successful, you will be notified that your green tax has been paid.
Suggested Change in Green Taxation in India
Therefore, in order to ensure a cost-efficient system, Green Taxes should apply uniformly to all taxpayers as differentiated tax rates will mangle the competition in the market and reduce the incentives and make them inefficient to lessen the environmental harm. Industrial exemptions can be allowed in this taxation only for a limited time period, but they should be well targeted and regularly reviewed so that enough time is given to the industries to structurally adjust in the long run and subsequent environmental effectiveness can be guaranteed. Further, it is important to assess the actual impact of a tax and hence, regular policy monitoring needs to be done to ensure that it is environmentally efficient, provided the market has adjusted to the existing rates and the firms and businesses are contemplating the change of business behavior towards being more environmentally suitable.
Conclusion
Environmental taxes are one of the best ways to bring prices of goods and services into line with society’s ideology about environmental protection. It is a tool of inducing environmental awareness in businesses and consumers and ensuring that industrialization and technological advancement should not outweigh the basic responsibility that we all have towards maintaining a sustainable environment. However, the effectiveness of an environmental tax is not only dependent upon who should pay what and when but also on the context in which the tax is used. It implies and includes the nature and type of the environmental problem and its relation to other environmental problems. Interactions with other policy instruments like legislations, regulations used to address the same objective as the tax in question, or for a different purpose altogether also play an important role and should be in the same wavelength with one another.
The main challenge is to design policy objectives and their instruments in such a way that the social costs of any inefficiency are minimized and a fair distribution of the burden is ensured. Thus, the policy framework needs to be systematically analyzed for the successful design and implementation of environmental taxes. In conclusion, what can be said is that though the system of environmental taxation has turned quite a few heads in the direction of sustainable development in India, it is high time that a system of Green Tax is popularized in order to keep up with the global standards of environment protection. For the sake of humanity at least, the impact of environmental taxation in India should be made far reaching and popularized.
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