by Abhilipsa Mohanty and Karshana Agarwal
Introduction
In this era of rapid industrialization and globalisation, where pollution has become a global problem, there arises a need to strike a balance between the economic advancements and the conservation of the nature and its resources. India is one of the countries that is on a path of major economic growth, as can be seen from the huge investments of the Government in the various industrial sectors. At the same time, according to a 2023 report, out of 50 most polluted cities in the world, forty two are from India.[3] It is high time that the government takes stringent measures to control the carbon emission levels to ensure sustainable development.
The terms “green tax”, “environmental tax”, “eco tax” or “pollution tax” refers to the idea of levying taxes on those products or industries whose actions have the effect of harming or polluting the environment in the longer run. It acts as a dis-incentive for those industries which will now have to bear an additional cost while undertaking such activities. The money then is mostly used by the government to reinstate the damage done to the environment by carrying out various nature-friendly activities.[4]
Imposition of taxes is one way of creating an awareness among the people to be conscious towards the environment while going through their daily activities or while undertaking a particular business. The purpose is to enable the creation of a healthier and sustainable environment for ourselves and the upcoming generations. While one cannot expect these activities to stop altogether, taxes are a way of ensuring that they are the environment is not over exploited for the greed of humans.
Implementation of Green Tax in India
In India, green tax has gained prominence as a policy tool to address environmental challenges, reduce pollution, and encourage sustainable practices. It is levied on various activities, products, and services that have a detrimental effect on the environment. The current chapter lays down various laws and policy measures taken at both the central level as well as by various states to ensure levying of green tax is boosted and conducted smoothly across the country.
Laws and Policies at the Central Level
The Ministry of Road Transport and Highways, Government of India released a draft of the “Guidelines for the imposition of Green Tax” (hereinafter ‘guidelines’) on older vehicles by State or Union Territories Governments on 02 February 2021.[5]
It is common knowledge that pollution from the running of vehicles is one of the major contributors when it comes to air pollution. Moreover, commercial vehicles add to this looming issue by contribution about 65 to 70% of the total vehicular pollution.[6] Additionally, it is established that the older the vehicle is, the more pollution it causes,[7] which is why the Government vide the draft guidelines aims to reduce the number of older vehicles on road by setting the threshold to the year 2000.
While taxation on vehicles especially in the form of green tax is a state subject, and numerous states in the country already have laws and rules in place governing the same, the Central Ministry decided to come out with the guidelines in order to provide uniform principles based on which states and union territories can proceed further and frame their own green taxation regimes in the country.
Discerning the Guidelines
The guidelines at the outset highlight that the levying of green tax is not uniform across the country and such lack of uniformity is leading to decreased rate of application of the tax which in turn is not able to further the aim of bringing about and implementing the idea of green tax regime in the first place. In light of the same, the guidelines provide for the below listed principles to serve as basic tenets to be followed across the country.
- Transport vehicles which have been running beyond 8 years would be eligible to be charged under this regime. The tax shall be levied at the time when the vehicle’s fitness certificate is renewed.
- The rate of tax for transport or commercial vehicles shall vary between 10 to 25% annually to be levied on the road tax over and above the regular taxes.
- For the vehicles used for personal uses, the tax shall be charged for those which have been running for more than 15 years and shall be charged for a term of five years as a lump sum amount payable at the time of renewing the vehicle’s registration certificate.
- The guidelines also prescribe for varying rate of tax depending on the type of fuel being used by the vehicle i.e., either diesel or petrol.
- Additionally, exemptions could be provided for vehicles which operate on alternate fuel options which are safer for the environment like CNG, LPG, Ethanol or Methanol blends etc.
- Exemptions could also be provided for vehicles which are used in the agricultural sector like tractors, tillers, harvester machines etc.
- It has been provided that the Government of the respective states or union territories are required to maintain a separate account wherein the collection from the green tax levied shall be collected and the same shall be utilised for combating issues of pollution and emissions in the state.
- The guidelines also suggest some ways in which the collected revenue can be utilised by the Government. It has been provided that the states could set up state-of-the-art on-road emission monitoring units which shall screen the vehicles on the road for the level of emissions and flag if the same exceed the permissible limits.
- Lastly, disseminating knowledge regarding the green tax regime and taking proactive measures to implement modern technology to combat the issue of pollution caused by vehicles are the need of the hour.
Governance at the State Level
At the outset, the question of whether or not individual states have the competency to formulate separate green tax policies and rates was raised before the courts. One of the landmark cases in this regard is that of K.M. Vijayan v. State of Tamil Nadu,[8] wherein Section 3A of the Tamil Nadu Motor Vehicles Taxation Act,[9] which provided for levying green tax on specific vehicles which had been already used for 15 years was challenged against the tenets of Article 14 of the Constitution.[10]
The argument advanced in the case by the petitioner was that the Seventh Schedule of the Constitution does not in either List I or List II enumerate “green tax” as one of the measured to eliminate pollution and hence the states do not have the power to legislate on the same. Moreover, the residuary power of taxation under Article 248(2) of the Constitution,[11] read with Entry 97 in List I, vested the Parliament alone with the power to levy green tax.
The court in the case relying on the pith and substance of the legislation held that the tax is imposed on the vehicle utilising the road, and it is collected on a motor vehicle that satisfies the requirements to be used on the road in order to carry out different pollution control measures. This would prevent the “green tax” from being a charge that is directly related to pollution in its essence. The use of motor vehicles for transportation is subject to taxes; the fact that the money raised is used to fund pollution control measures is incidental, therefore the tax cannot be regarded as a pollution law.
Moreover, the court also went ahead to clarify that even though pollution is not covered by any entry in the Seventh Schedule to the Indian Constitution; the topic is covered by Entry 6, Public Health, which is a state-list item. Therefore, the State Government would be authorised to adopt any law under Entry 6 of List II of the State List furthering the aim of ensuring public health which is affected by the broader phenomenon of pollution in the environment.
As a result of the settled position from the case of K.M Vijayan, various states and union territories in India, including Andhra Pradesh, Telangana, Karnataka, Maharashtra, Dadra and Nagar Haveli, Uttar Pradesh, and Jharkhand now have a green tax regime in place and have been successfully collecting revenue for the purpose of combating air pollution in the territory.
Identifying the Drawbacks and Challenges
While the Centre has come up with draft guidelines and various states and union territories have pre-existing regime of taxation for vehicles in place, it is imperative to note that the rate of percolation of the green tax regime in India is significantly low.
It is important to realise the challenges which are being faced in order to ensure that the situation can be handled better.
1. Building A New Regime
Since the concept of levying green tax is new in India, there is a lack of laws in the first place to govern this regime properly. Additionally, even if few states have gone ahead and formulated their own taxation regime for green tax, the lack of uniformity adds to the pre-existing issues.
Moreover, it also has to be taken into account that cases wherein stringent policies or laws are not in place, are easily evaded by the public at large which unfortunately is the case currently with green tax.
2. Administrative Issues
The role of Government and administrative agencies are key to ensuring that the green tax is enforced across the country successfully.[12] Since the concept of green tax in the country is comparatively more recent than the normal taxation regime in the country, additional expenses need to be incurred at the administrative end to ensure that the information is dispensed to all assesses to ensure that they are aware of the same.
3. Lack Of Training For Levying The Tax
In a study conducted on the effectiveness of green tax regime in India, it was observed that due to lack of training of those entrusted with the responsibility to levy green tax, there is a lack of efficient and timely management of the tax which is defeating the purpose of introducing the tax in the first place.[13]
4. Additional Boost With Subsidies
India’s tax regime offers various subsidies which from the perspective of environmental protection can defeat the principle of polluter’s pay and result in the free-rider problem.[14] However, in order to ensure that the green tax regime is successful and does not face the same issue, it is imperative that the Government tries and boosts use of environmental-friendly technology and products. The same can be done by providing additional subsidies which need to be formulated in an effective manner to ensure proper implementation and have trickle-down effect in the economy.
5. Effective Utilisation Of Revenue Collected
The aim behind levying green tax, as is also mentioned in the guidelines released by the Central Ministry,[15] was to ensure that additional revenue is generated which shall be utilised to battle against the problem of air pollution. However, the purpose currently stands unfulfilled as the funds are not being utilised in their entirety. For example, Delhi Municipal Corporation have been able to collect over Rs. 1298.38 crore by levying green tax between the period of October 2015 to December 2021.[16] However, only Rs 281.51 crore of the same has been utilised, and an amount of Rs. 1016 crore still stands unspent which points to the underutilisation of the revenue generated to further the aim of the introduced policy.[17]
Analysis and Suggestions
While India has embarked on the journey of implementation of green tax in the country, it still remains a distant dream to have the system up and running effectively across the nation. The present legal scenario is inadequate to deal with the various challenges posed in the system and also is not underequipped to make the most of the opportunities being provided by the regime of green tax.
USA is considered to be a pioneer for green tax regime since the 1960s, with initial legislations focusing on emissions and with time, shifting to a more holistic approach. Noteworthy initiatives are Colorado’s use of electricity taxes[18] for climate initiatives and the 2022 Inflation Reduction Act[19] promoting renewable energy and decarbonization. The USA has implemented various green taxes and incentives at all three national, state and local levels. India can implement similar methods of strategy by taxing emissions, incentivizing eco-friendly technologies, and encouraging the increased use of renewable energy to ensure sustainability.
Moreover, in India itself, states like Rajasthan have been able to increase their green tax collection significantly by achieving an increase of 32.16% in the assessment year 2017-18.[20] Jaipur was the city which was able to collect the highest green tax, followed by Jodhpur and Udaipur.[21] The state has also been able to effectively utilise the revenue generated by depositing it in the Rajasthan Transport Infrastructure Fund which is being utilised to develop the metro rail network in the city.[22]
Similarly, the situation is also escalating in the southern state of Kerela wherein the Government had imposed a 50% hike in green tax for the year 2022-23 expecting an additional revenue of Rs. 10 crores as opposed to the last assessment year.[23] While COVID-19 resulted in drop of collection of tax by Rs. 3.54 crore, the state has been able to revive and is on track to phase out over 21 lakh vehicles from the roads.[24]
This comes as a sharp contrast to the territory of Delhi which is unable to effectively utilise its funds generated by collection of green tax. [25]
The first and foremost step to be taken by the government is towards setting up a uniform policy pan-India for green tax. Evidence suggests that a green tax is necessary and required as a tool and a policy approach to address the increasing levels of environmental pollution is the need of the hour.[26]
Additionally, expenses at the administrative level are to be incurred to ensure that the institutional machinery is brought at par to ensure proper implementation of the policy.
Moreover, in the future the scope of the policy can be widened to bring into its ambit other forms of taxes beyond green tax or tax on carbon emissions.[27] For instance, the government of South Korea has levied additional taxes on cars that are on congested roadways during the busiest times of the day.[28] This promotes the use of public transport over private vehicles. In Austria, the tax slabs for certain cars vary according to how fuel-efficient they are. diesel-powered vehicles are subject to greater taxes than gasoline-powered autos. In a same vein, India must develop an extensive and innovative tax laws to encourage people to adopt green technology.[29]
Conclusion and Way Forward
Green tax is an opportunity that India is embracing in order to increase revenue while also dealing the serious prevailing issue of pollution. Imposition of taxes is one way of creating an awareness among the people to be conscious towards the environment while going through their daily activities or while undertaking a particular business. While the aim is well founded, the policy around it needs to develop to meet the goal.
The taxation regime of India has been able to achieve increased revenue for specific purposes in the past successfully, and in order to ensure that green tax is able to do the same it is important that the policy is developed uniformly for the country and states are able to bring into its purview all those affected by it.
Inspiration from countries like United States of America which has been able to institute a successful green taxation regime would help India implement the same. India must develop an extensive and innovative tax laws to encourage people to adopt green technology.
[1] Abhilipsa Mohanty is a final year student pursuing B.A., LL.B. at National Law University Odisha.
[2] Karshana Agarwal is a final year student pursuing B.A., LL.B. at National Law University Odisha.
[3] https://indianexpress.com/article/india/india-3rd-most-polluted-country-rankings-top-50-cities-9221968/
[4] MV Swathi, ‘An Analysis of Green Tax in India’ (2022) 3(4) Indian JL & Legal Rsch 1.
[5] Ministry of Road Transport & Highways, Govt. of India, ‘Draft guidelines for imposition of green tax on older vehicles by State/UT Governments’ (2021) < https://morth.nic.in/sites/default/files/circulars_document/Draft%20Guidelines%20Green%20Tax(1).pdf > accessed on 04 February 2024.
[6] Ministry of Road Transport & Highways, Govt. of India, ‘Green tax to be imposed on older vehicles soon, to clean up the environment by phasing out unfit and polluting vehicles’ (2021) < https://pib.gov.in/PressReleasePage.aspx?PRID=1692228#:~:text=It%20is%20estimated%20that%20commercial,15%25%20of%20total%20vehicular%20pollution.> accessed on 04 February 2024.
[7] Jennifer Dill, ‘Older vehicles and air pollution: Insights from the 1995 NPTS’ (2001) Department of City and Regional Planning University of California, Berkeley.
[8] K.M. Vijayan v. State of Tamil Nadu 2005 SCC OnLine Mad 642.
[9] Tamil Nadu Motor Vehicles Taxation Act 1974, s. 3A.
[10] Constitution of India 1949, art 14.
[11] Constitution of India 1949, art 248(2).
[12] Zoltan Nagy, The Role of Environmental Taxation in Environmental Policy, (2013) 47 ZBORNIK RADOVA 515, 518.
[13] Vinuta P., Ajay R., ‘A Study on Green Tax in India – It’s Effectiveness and Challenges’ (2020) Journal of Seybold Report, 1798.
[14] M.V. Swathi, ‘An Analysis of Green Tax in India’ (2022) Indian Journal of Law and Legal Research 4, 1-14.
[15] Ministry of Road Transport & Highways, Govt. of India, ‘Draft guidelines for imposition of green tax on older vehicles by State/UT Governments’ (2021) <https://morth.nic.in/sites/default/files/circulars_document/Draft%20Guidelines%20Green%20Tax(1).pdf> accessed on 04 February 2024.
[16] Paras Singh, ‘₹1,298.38 crore collected as green cess from vehicles entering Delhi’ (2022) Hindustan Times <https://www.hindustantimes.com/cities/delhi-news/129838-crore-collected-as-green-cess-from-vehicles-entering-delhi-101646424984985.html> accessed on 05 February 2024.
[17] Paras Singh, ‘₹1,298.38 crore collected as green cess from vehicles entering Delhi’ (2022) Hindustan Times <https://www.hindustantimes.com/cities/delhi-news/129838-crore-collected-as-green-cess-from-vehicles-entering-delhi-101646424984985.html> accessed on 05 February 2024.
[18] City of Boulder, Colorado Charter and Revised Code 2024, Chapter 13: climate tax.
[19] Inflation Reduction Act 2022.
[20] Parul Kulshrestha, ‘Green tax collection up 32% in Rajasthan’ (2018) The Times of India <https://timesofindia.indiatimes.com/city/jaipur/green-tax-collection-up-32-in-raj/articleshow/65140251.cms> accessed on 05 February 2024.
[21] Parul Kulshrestha, ‘Green tax collection up 32% in Rajasthan’ (2018) The Times of India <https://timesofindia.indiatimes.com/city/jaipur/green-tax-collection-up-32-in-raj/articleshow/65140251.cms> accessed on 05 February 2024.
[22] International Finance Corporation, ‘Rajasthan Water Assessment: Potential for Private Sector Investments’ (2013) New Delhi.
[23] T.C. Sreemol, ‘As vehicles get old, green tax collection rises in Kerala’ (2022) The Times of India <https://timesofindia.indiatimes.com/city/kochi/as-vehicles-get-old-green-tax-collection-rises-in-state/articleshow/90467806.cms> accessed on 05 February 2024.
[24] T.C. Sreemol, ‘As vehicles get old, green tax collection rises in Kerala’ (2022) The Times of India <https://timesofindia.indiatimes.com/city/kochi/as-vehicles-get-old-green-tax-collection-rises-in-state/articleshow/90467806.cms> accessed on 05 February 2024.
[25] Paras Singh, ‘₹1,298.38 crore collected as green cess from vehicles entering Delhi’ (2022) Hindustan Times <https://www.hindustantimes.com/cities/delhi-news/129838-crore-collected-as-green-cess-from-vehicles-entering-delhi-101646424984985.html> accessed on 05 February 2024.
[26] M.V. Swathi, ‘An Analysis of Green Tax in India’ (2022) Indian Journal of Law and Legal Research 4, 1-14.
[27] Asian Development Bank Fossil Fuel Subsidies in Asia: Trends, Impacts, and Reforms – Integrative Report,
(2016) <https://www.adb.org/publications/fossil-fuel-subsidies-asia-trends-impacts-and-reforms> accessed on 06 February 2024.
[28] Asian Development Bank Fossil Fuel Subsidies in Asia: Trends, Impacts, and Reforms – Integrative Report,
(2016) <https://www.adb.org/publications/fossil-fuel-subsidies-asia-trends-impacts-and-reforms> accessed on 06 February 2024.
[29] Asian Development Bank Fossil Fuel Subsidies in Asia: Trends, Impacts, and Reforms – Integrative Report,
(2016) <https://www.adb.org/publications/fossil-fuel-subsidies-asia-trends-impacts-and-reforms> accessed on 06 February 2024.
