Photo: Aniruddha Chowdhury/Mint
Photo: Aniruddha Chowdhury/Mint

Budget 2016-17: Jaitley’s cess route to a green highway

Aimed at reducing pollution, finance minister announces series of cesses to discourage people from buying cars that run on conventional fuel

New Delhi: Making India’s stand on environment clear, finance minister Arun Jaitley on Monday announced a series of cesses that will alter business models and technologies across the country.

Aimed at discouraging people from buying vehicles that run on conventional fuel, Jaitley in his budget speech introduced four different kinds of cess on passenger vehicles, which are aimed at reducing pollution and traffic congestion in the cities. To be sure, he also introduced a series of schemes to promote use of electric and hybrid vehicles.

“The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess, of 1% on small petrol, LPG, CNG cars (with less than 4 metre in size with engines up to 1200c), 2.5% on diesel cars of certain capacity vehicles (of length not exceeding 4m and engine capacity not exceeding 1500cc) and 4% on other higher engine capacity vehicles and SUVs," Jaitley said.

Three-wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology and motor vehicles which after clearance have been registered for use solely as taxi and ambulances are exempted from these cesses.

Similarly, Jaitley doubled the clean energy cess from 200 per tonne of coal to 400, besides renaming it clean environment cess. Money from the cess is used to finance clean environment initiatives.

India, the world’s third-largest emitter of greenhouse gases, is among the few countries in the world to introduce a carbon tax. Also, with the country bullish on coal mining, the annual collection of the cess is likely to be substantial.

As per the revised estimates, the central government had collected 12,623 crore from the clean environment cess in 2015-16 and hopes to raise 26,148 crore in 2016-17. The cess on cars is expected to collect around 3,000 crore.

“Finally, we are seeing that polluter pays principle is being integrated with the fiscal policy," said Anumita Roychowdhury, executive director of the Centre for Science and Environment (CSE), a Delhi-based environment think-tank.

“The finance minister doubling clean environment cess on coal and lignite is also important as it implies the principle of taxing bad to fund good. Therefore, it is important to speed up clean energy transition," she said.

Jaitley also set aside 2,000 crore to provide liquefied petroleum gas (LPG) connections to below poverty line (BPL) households in rural areas. This will also bring down pollution levels significantly.

Though these cesses will increase the cost of finished products, they will help the government generate more revenues and project the country’s environment-friendly measures. In the run-up
to the Paris climate conference place in December, India had announced that it aims to reduce the emissions intensity of its GDP by 33-35% by 2030 from 2005 levels and achieve 40% of its cumulative electric power from renewable power. It had also promised to shift to clean coal technologies.

Pawan Goenka, executive director, Mahindra and Mahindra Ltd said the cess on passenger vehicles is a concern. “However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. (It) would have been good if some of the additional revenue from this cess was used to phase out older vehicles," he said.

The industry is also lobbying for a vehicle scrappage scheme that would spark demand and cut pollution.

Jaitley also proposed to collect tax at source at the rate of 1% on luxury cars over 10 lakh.

Simultaneously, Jaitley has encouraged the use of electric and hybrid vehicles. He issued a grant of 200 crore to the FAME scheme, which aims to put 6 million electric and hybrid vehicles on roads by 2020. Moreover, the validity period of exemption granted to specified goods for the use in the manufacture of electric and hybrid vehicles is being extended without time limit. This will help improve consumer sentiment around these vehicles and promote faster adoption.

Jaitley also reduced basic customs duty on aluminium oxide for manufacture of wash coats, which are used in manufacturing catalytic converters from 7.5% to 5%. Catalytic converter is an expensive component of a car that helps in reducing emissions of three harmful compounds found in car exhaust: carbon monoxide (a poisonous gas) nitrogen oxides (a cause of smog and acid rain) and hydrocarbons (a cause of smog).

The government continued with nil basic customs duty and 6% excise/CVD regime on parts of electric vehicles and hybrid vehicles beyond 31 March. The duty concessions on specified parts of electric vehicles/hybrid vehicles have also been extended.

In January, the government had said that India will move up to the toughest emission standards of BS-VI from the current BS-IV by 2020, skipping an intermediate level.