Blog: A Common Road Tax For Entire Nation Coming?

The Indian government is seriously studying if it could implement this year a pathbreaking idea of a common road tax for the whole nation.

It could work, if the Centre can convince the states.

Interestingly, the Bharatiya Janata Party-led NDA government had mooted in 2016 but failed to implement because of strong resistance from a number of states, especially those ruled by the opposition parties. 

Any effect to revenues outside GST has been a contentious issue amongst states averse to such reforms as it would take a hit on their revenues. States believe and claim that road taxes differ in their states depending on levels of development and the needs of the states. States, especially the likes of Karnataka, Tamil Nadu, Telangana, Andhra Pradesh and Kerala have the highest taxation rates and feel they are justified when compared to laggard states. And after the GST experience around compensation and share, some states hold apprehensions that such moves will further hit their revenue.

Some of the contentious issues between the Centre and the states when it comes to taxation revolve around fuel, alcohol, land registery and vehicle registrations. Interestingly, it was in 2018 when a Group of Ministers (GoM) on transport had recommended a uniform road tax structure for vehicles across states and that the tax be charged based on the invoice price of a vehicle. But the states still did not agree, they argued transportation is a state subject and the prerogative of the state.

But things have changed politically for the NDA government, which recently won some crucial elections in the states. Now, the government may come out with a white paper on the subject submitted to the Ministry of Road Transport and Highways (MoRTH) by IndiaTech, a top think tank that works to develop internet commerce ecosystem in India. 

It is reliably learnt that the government wants prevention of tax evasion and completely stop multiplicity of road taxes. The move, feels the government, will promote simplicity of transfers, payments and refunds, and removing what has been a major economic roadblock in transferring, buying and selling of pre-registered vehicles. The move, feels the government, will also bring about a much-needed ease of owning and disposing of vehicles. 

The move, temporarily christened One Bharat, One Road Tax, is a model the government wants to implement as a uniform road taxation regime will bring about a unified framework, making the public understand and comply with simplified road tax regulations, irrespective of where they are living in the country. The move, says the white paper, has the potential to alleviate citizens of cumbersome compliances, open avenues for businesses to efficiently trade used vehicles, and ensure that the government's efforts to digitally transform the nation bear fruit. 

"One Bharat, One Road Tax will disincentivize tax evasion, remove barriers in the used vehicle industry, and make inter-state sales of pre-owned vehicles easier," Rameesh Kailasam, CEO and President, IndiaTech, has been quoted in the white paper as saying. 

Presently, each state follows its own formula for arriving at road tax, leading to varied prices of the same model of vehicle in different states. Consider this one. The rate of road tax varies from 2 to 18 percent of the cost of the vehicle in different states. Simply put, on-road prices turn out to be strikingly different from state to state for the same model. So it is fairly common to have buyers purchasing cars in another state, rather than their state of domicile or residence, due to lower road tax in those states. 

And this is what the government wants to change.

The White Paper makes a number of recommendations on reforms needed for ease of owning and disposing of vehicles. It calls for the formation of a national digital RTOs' dashboard, standardization and digitisation of Registration Certificates (RCs) and achieving 100% digitisation in the area of challans to improve revenue collection and accountability. 

The government, it is reliably learnt, is in sync with almost all the recommendations made in the White Paper. The government wants to remove bottlenecks faced by the used vehicles market, including start-ups engaged in the sale of pre-owned vehicles. These include an overhaul of the cumbersome inter-state vehicle registration process that currently involves physical verification and physical filing. The government wants a simpler format akin to first sales of cars and 'vehicle evaluation' by the pre-owned vehicle dealer. 

The government is also contemplating controlled access to the national vehicle registry database to licensed used car dealers (UCDs), insurance companies, scrap dealers, and automotive workshop organizers. This would help in verifying the hypothecation details when a vehicle is being sold so that buyers are aware of any pre-existing hypothecation or other charges. It will be easier to check blacklisted vehicles. This would further ease the cumbersome system of owning and disposing of vehicles. 

The paper also advocates that Form 29C is amended to include the transfer of deemed ownership from one registered used car dealer to another registered dealer since a common practice in the industry is the transfer of vehicles from one dealer to another. 

Further, the paper advocates a centralised registration for Used Car Dealers (UCDs) instead of the current law where authorization of dealers of registered vehicles can be made only to the registering authority under whose jurisdiction they have their business. This move is also important, else pre-owned car startups having pan-India business will end up registering in each and every RTO and state.

(Shantanu Guha Ray is the Asia Editor of Central European News, UK. His book on coal, Black Harvest, will hit the stands soon)

Disclaimer: These are the personal opinions of the author.