The Prime Minister of India had urged people to use public transportation rather than personal vehicles during the Global Mobility Seminar held in September 2018. This would require public transportation to be incentivised and private vehicle ownership/usage to be disincentivised.
Public bus transportation in Bengaluru is ailing, with the Bengaluru Metropolitan Transportation Corporation (BMTC) seeking Rs 260 crores from the state government to sustain its existing level of services. Currently the BMTC is running on a loss of Rs 10 for every kilometer that it operates. There have been discussions by the Transport Department to propose a bus fare hike. This comes three months after the Department’s proposal to increase the rates of state-run transport corporation by 18 % was struck down by the Chief Minister.
The decision to increase the fares comes at a time when it is known that Bengaluru has the highest bus fares compared to other major cities in the country. I had recently written to D C Thammanna, Transport Minister, Government of Karnataka, requesting him not to increase BMTC fares, and to provide an alternate option.
What I have written to the Minister and advocate for is the introduction of a Vehicle Area Tax (VATAX) based on the area/ size of the vehicle(in square meters). Dr Vivek Moorthy (Professor- IIM B) has been a strong proponent of this idea and has been writing about it for over a decade. This tax will be calculated based on the area of the vehicle. If the vehicle measures 5 square metres around the edges, and the tax rate is Rs 3,000 per square metre, then the vehicle owner would have to pay Rs 15,000. The rationale behind this form of tax as Professor Moorthy puts it is that car is a mobile land not paid for, unless it is within the owner’s premises.
As Professor Moorthy asserts it might be difficult to tax vehicles that have already been bought and registered, as they would have already paid the Lifetime Tax. It would be better to apply the one-time VATAX as a surcharge on new cars.
Currently Life Time Road Tax is payable only on the basis of price. VATAX is proposed in addition to the existing Life Time Road Tax. The area of the car is suggested as the criteria because the car owner must pay for the scarce road space occupied by the car.
There may be rare cases of cars which are expensive but are not big in terms of area. Since Life time Tax is payable on the overall price of a car, the tax paid on expensive cars is already high. VATAX is suggested on all personal vehicles and taxies. No VATAX is suggested on two-wheelers because the whole idea is to disincentivize purchase of cars.
The advantages of VATAX
- It is a more logical method of calculating Road Tax as it considers the area occupied by a car on the road.
- It serves the cause of social justice because for bigger cars, higher VATAX is payable.
- It disincentivises the purchase of bigger cars thereby helping to reduce congestion on the roads.
An estimate of the number of new cars for 2019-20 in Bengaluru Metropolitan city is 1,39,994. This is based on an assumption of 10% increase from the previous year (2017-18). Data collected through RTI from a Bengaluru RTO indicates that the weighted average area of a car is 6.26 square meters. If a surcharge of Rs 3,000 per square meters was to be applied on every new car, then the revenue that will be generated would be around Rs 262.90 crores.
This form of taxing enables the government to earn revenue which can be diverted for public transportation. The amount generated should be diverted to BMTC which requires approximately the same amount to sustain its existing level of services.
To appreciate the revenue potential of VATAX, please see the table below which gives data about the top 10 cars sold in India from January 2018 to November 2018 (Data source: NDTV News), and a sample calculation based on it.
|Sr No||Make-model||Vehicles sold in India (Jan-Nov 2018) (Source: NDTV)||Vehicles expected to be sold in 2019 (5% more than 2018)||Area of the car(in sq mts)||Rate of Veh Area Surcharge (Rs/sq mts)||Amount of Vehicle Area Surcharge expected in 2019|
|1||Maruti Suzuki Dzire||247815||260206||6.93||3000||541,07,11,860|
|2||Maruti Suzuki Alto||231540||243117||5.11||3000||372,74,94,156|
|3||Maruti Suzuki Swift||211840||222432||6.66||3000||444,57,92,870|
|4||Maruti Suzuki Baleno||199101||209056||6.97||3000||437,21,61,645|
|5||Maruti Suzuki Vitara Brezza||145799||153089||7.15||3000||328,42,40,208|
|7||Hyundai Grand i10||122799||128939||6.25||3000||241,75,66,631|
|9||Maruti Suzuki Celerio||91957||96555||5.91||3000||171,24,96,820|
Assuming that just 5% more cars of the same make-model are sold in 2019, an amount of about Rs 3,260 crores can be collected as VATAX. Just to emphasize, we are talking of only ten top-selling cars. On all new cars sold in 2019, the amount of VATAX will be huge. In my opinion, the time has come for this rational, socially just tax structure.
Note: Arjun Rajan helped in writing this up.