How Traffic Jams, Air Pollution May Worsen Under GST

His odd-even road space rationale may not have yielded the exact results as Chief Minister Arvind Kejriwal expected but the intent with which the formula was introduced in the national capital has been appreciated by experts. By keeping a check on the number of automobiles on roads, Kejriwal tried to bring the pollution levels down in Delhi, a city that has the dubious distinction of being counted among the most-polluted cities in the world. Traffic control would also have been achieved in the process to get the end result. Unfortunately, the impact of the formula on Delhi pollution has been limited, says a study.

Even if the move was “whimsical” and impact was limited on curbing pollution levels, the odd-even formula did provide people travelling on Delhi roads a temporary refill by limited traffic jams. Other measures have also been implemented to meet the same objective. The Supreme Court has, for instance, imposed a one per cent levy on big diesel cars sold in the national capital region. Across the country, awareness campaigns are run to make people aware of the harm automobiles cause to the environment, and them in turn. However, they seem not be making the desired impact either. According to a study by the International Energy Agency (IEA) last year, passenger car ownership in India will grow by 775 per cent over the next 24 years. "In the new policies scenario, passenger car ownership grows from less than 20 vehicles per 1,000 inhabitants today to 175 cars per 1,000 people in 2040, and overall road passenger vehicle activity increases more than six-times," the report said.

The Goods and Services Tax (GST) regime, it appears, would give people a bigger reason to own bigger automobiles. How so?

Under the current regime, sports utility vehicles or suburban utility vehicles (SUVs) are taxed at a rate ranging from 47.5 per cent and 54.5 per cent across Indian states. The rate is kept higher taking into account the damage these giants cause to the environment. However, when the GST regime is implemented from July 1, buying an SUV would become cheaper.  Under the GST, a buyer will be paying only a 43 per cent tax to buy an SUV. This includes compensation cess, too. In effect, there would be 4.5-11.5 per cent reduction in tax rates in the new regime.

“Such a significant reduction in the tax represents a massive incentive for sale of such vehicles. For example, the Mahindra Scorpio model that costs Rs 9.3-15.51 lakh under the pre-GST regime, will cost Rs 8.56-14.27 lakh under GST – this represents a price reduction of about Rs 74,000 to Rs 1,24,000. This will have serious consequences in terms of motorisation and dieselisation as there is no proposal to equalise the price of petrol and diesel fuel,” Anumita Roychowdhury, executive director-research and advocacy, Centre for Science and Environment, was quoted by the CSE site as saying.

“This will encourage these huge energy-guzzling engines and add to the public health risk that we already facing from toxic diesel emissions. We believe the GST has not adequately integrated the polluter-pays principle and the principle of using fiscal instruments to discourage polluting technology and fuels,” CSE Director-General Sunita Narain said.

“We strongly recommend that the Union ministry of finance should urgently impose a strong and effective disincentive for SUVs in the form of a Sin Tax, which will restore the effective tax rate to pre-GST rates,” she added.

The current framework is also not in line with the recommendations of a panel set up to assist the GST Council build the framework. The Arvind Subramanian Committee on the Revenue Neutral Rate and Structure of Rates for the GST had also recommended higher levy on goods and services that are pollutants.

"There is a growing international practice to levy sin/demerit rates in the form of excise outside the scope of the GST on goods and services that create negative externality for the economy. These include carbon taxes, taxes on cars that create environmental pollution, taxes to address health concerns, etc," the report has said.