By Dr. Gyan Pathak
Prices of vehicles on-road vary vastly across the states in India, which not only encourages evasion of taxes but also makes the process of compliance cumbersome. Varied taxes imposed by the states is the main reason for this distortion and it must be replaced by a uniform road tax regime in the country. This is all the more important because India has the second largest road network in the world – 63.32 lakh kilometres.
Only the United States of America has more kilometres. National highways increased by 59 percent in the last decade. India is also home to the world's third-largest automobile industry, with the sector contributing a healthy 6-7% to the GDP. The ownership of personal vehicles has increased sharply and the number of registered motor vehicles grew at a CAGR (Compounded Annual Growth Rate) of 9.83 percent from 2010 to 2020.
The problem is each state has its own road tax formula, leading to differentiated pricing of the same model in different states. The rate varies from 2 to 18 percent of the vehicle cost, and the basic parameters considered are weight, length, sale price, make, and engine capacity. For consumers, who burn a hole in their pockets to purchase the car, this differentiation is expensive.
A White Paper on “One Bharat One Road Tax” prepared by IndiaTech.org (TSIA) and submitted to the Ministry of Road Transport & Highways has pointed out that this makes on-road prices of the same model to be strikingly different from state to state, 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.
With the introduction of the Goods & Services Tax (GST) regime, a major price anomaly that existed in the previous Value Added Tax (VAT) regime and that applied to the purchase of a vehicle has already been fixed. However, the anomaly of the road tax persists.
Migration for better job opportunities is a fact of life for people in India, especially for the younger generation. They also like to take their vehicle with them wherever they go. However, most of the people interviewed by the researchers said that if they decide to carry their vehicle along them to the next state, they encountered the processes of asking for a refund, re-registering their vehicle and paying the road tax again which was not only onerous and painful but also illogical being the citizen of the same country.
The white papers says that road tax as percentage of the cost of vehicle for a new Rs6 lakh petrol-run vehicle with an engine capacity upto 1200 cc in Uttar Pradesh is 3 percent, in Haryana 5 per cent, in Gujarat 6 percent, in Rajasthan and Bihar 9 percent each, in Kerala 11 percent and in Karnataka 14 percent.
Such different tax structures pose a burden of compliance on people with transferable jobs . As per clause 47 of the Motor Vehicles Act, passenger vehicles can ply in a different state for a maximum period of 12 months after which penalties can be levied, if not re-registered. The current road tax system ensures an onerous process of re-registering the vehicle by paying road tax again for the already road tax paid vehicle supplemented with more paperwork and visits to Regional Transport Offices (RTOs). The owner also needs to cancel the old registration in the previous state and apply in the new state, which leads to the duplication of road tax payments as refunds are rare or calculated on depreciated value while the new state may use discretion and apply on invoice value again.
One can theoretically avail a refund from the original state, but the reality is that many either do not avail this or find it onerous due to the processes and paperwork, the white paper said. Lack of awareness amongst applicants as well as authorities along with the high cost in terms of time, effort, and the uncertainty in receiving the refund, discourages one further from applying for a refund. Moreover, the mechanism of getting a refund can vary from state to state adding to the burden of compliance.
Authors of the white paper Rameesh Kailasam, Dhiraj Gyani, Shivam Tandon, and Jharna Kamdar have said that bringing uniform road tax regime is also important in terms of sale and purchase of used vehicles. In FY 2021-22, the Indian used car industry was valued at $23 billion, and it is expected to grow and expand at a CAGR of 19.5% in value and 12.7 percent in volume by FY 2026-27.
The white papers therefore has called for a uniform road tax regime which will prevent tax evasion and do away with the multiplicity of payment of road taxes; Promote simplicity of transfers, payments and refunds; Remove a major economic roadblock in transferring, buying and selling of pre-registered vehicles; and Bring about a much-needed ease of owning and disposing of vehicles.
