Revamp Vehicle Taxes

India’s car market is booming; alongside traffic congestion, emissions, and safety concerns are rising. This article explores how annual vehicle taxes and rigorous safety checks, as practiced in countries like the USA and Japan, could address these issues, boost public transport, and generate significant revenue for essential services.

India is among the world’s largest market for private cars, producing over 4 million annually. The car market in India is growing spectacularly, with SUVs and high-end cars growing faster than budget ones. Over 80% of these cars are in cities, causing traffic jams, lower speeds, worse mileage, and higher emissions. Idling engines pollute six times more than cruising ones. The debilitating effects of traffic congestion are evident and require no further elaboration.

In India, where urban road space is scarce, buses use it 30 times more efficiently than cars. With cars taking up 80% of road space but buses just 5%, it’s unfair that taxes favour cars over buses. The tax system should reflect the efficiency difference.

In India, cars are taxed once at purchase, while buses pay annual taxes. This makes buses’ total taxes 6-8 times higher over their lifetime. Car taxes range from 6% to 14% of the value, and buses, depending on features and seats, pay about 10-12% annually, plus higher tolls.

While researching car taxes around the world, I found that many countries, including the USA, UK, Japan, and China, levy annual taxes on cars. The following table shows the tax levels in some of these countries.

Smart tax, better transit

In many countries, car taxes are high and include annual emissions and safety checks. India should adopt this, adding safety inspections for tires and suspension, creating jobs and improving safety through reputable agencies.

About 40 years ago, Mumbai had an annual fee system that failed due to poor management. Now, with easy digital payments, we should reintroduce a one-time tax—18% for cars under 10 lakhs and 25% for pricier ones—uniformly across states to boost revenue and curb malpractices.

With over 3 million cars sold annually and 40% being high-priced, incremental revenue could hit50,000 crore. We should implement machine-readable number plates to streamline car management for revenue, tolls, and safety. Given India’s high accident rates, we need mandatory annual safety and emission tests, just like in the US. Second-hand car sales should have the same tax rates.

Once our RTOs are smarter and more efficient, we should switch to an annual tax system at a lower rate. Taxes on buses should be much lower than cars to make them a better choice. Instead of paying 70–80% of the lifetime tax annually, buses could have a one-time purchase tax like cars.

It is suggested that we should have a 5% tax on electric buses, 12% on CNG, and 15% on diesel. Taxes should be the same for all sizes and types, plus mandatory annual emission and safety tests.

Balancing the taxation of private and public transport will shift the preference from cars to buses for intra-city and inter-city transport. This will ease road congestion, cut fuel use, and boost bus services, especially as more buses go electric. With high-speed trains and double-decker buses on the way, buses will be a top choice for budget-conscious commuters, offering lower costs than metros and comparable travel times.

This tax reform will make transportation smarter and more efficient. The revenue generated will fund crucial services like education, health, and affordable housing. It’s a move towards better public transport and efficient urban use, embodying “Sabka Saath, Sabka Vikas” (with everyone, everyone’s development).