India’s vehicle taxation policy could soon change. Unlike the present system where road tax and excise duty on a vehicle increase in proportion to the cost and intended usage of the vehicle, the new tax system intends to tax a vehicle based on its tailpipe emissions. Effectively, a vehicle with a larger, higher polluting engine will see a higher rate of tax rather than a vehicle of the same size but with a smaller engine, or a hybrid engine or an electric powertrain. By taxing vehicles in such a way, the government hopes to make cleaner vehicles cheaper to buy and polluting vehicles more expensive to buy.
Eventually, consumers may start preferring cheaper, low-polluting vehicles, prompting vehicle manufacturers to build more such vehicles, thereby reducing pollution levels and the country’s dependence on expensive petroleum imports. Notably, India has had success with a similar scheme, where sub-4 meter compact cars with petrol engines under 1.2 litres and diesel engines under 1.5 litres, were taxed lower than cars measuring more than 4 meters. Due to the excise duty benefits, this led to car makers developing smaller engines for most cars and also building smaller cars that occupied less space on roads.
The new policy is in the draft stage, and is likely to soon be approved by the government, after which it will become the law. World over, countries are encouraging the manufacture of low-polluting vehicles by offering a range of incentives to both manufacturers and buyers. India too has plans of subsidizing fully electric vehicles that have significant local content. The government is buying thousands of electric cars for use across departments. Car makers have also begun large scale investments to develop both electric vehicles and electric vehicle charging infrastructure.