Is government’s vehicular carbon tax plan workable?
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Sri Lanka will be imposing a carbon tax on motor vehicles running on petrol or diesel fuel with the aim of reducing carbon dioxide emissions through the combustion of fossil fuels.
But the lack of clarity in the implementation of the tax has created confusion among vehicle owners although it is aimed at tackling air pollution.
The 2017 budget proposed to introduce a carbon tax on vehicles to mitigate greenhouse gas emissions with the aim of preventing air pollution as the country grapples with the impact of vehicle emissions on climate change and air quality.
The proposed carbon tax for motor cars will be Rs. 2,000 a year and it will come into effect from this year.
This new tax will replace the existing system of paying Rs. 1,100 a year to private companies for emission tests, for which motor car owners do now from the two vehicle emission testing (VET) service providers, Drivegreen and Laugfs Ecosri.
This certificate is compulsory to obtain a vehicle licence to run on local roads. Without considering the existing mechanism for controlling air pollution, the government has introduced a new carbon tax compelling all vehicle owners to pay this tax to the Motor Traffic Department (MTD) after they obtain a green test certificate from a service provider free of charge.
The methodology of recovering this tax from vehicle owners is yet to be announced by the Finance Ministry. Even the MTD the proposed collecting authority of the new tax and two service providers are yet to be informed about this tax collection system.
Under the 2017 budget proposal dual purpose vehicle owners will have to pay Rs. 2,500 compared to Rs. 1,190 paid for the emission test earlier while van owners will have to pay Rs. 2,500 compared to Rs. 1,010 paid previously.
Lorry owners are required to pay Rs 2,500 compared to the present payment of Rs. 1,550.
The money due for service providers for conducting emission tests of vehicles would be paid by the MTD and the vehicle owners are not required to pay it to those emission testing companies directly.
According to the present system, the VET fee varies from vehicle category,  and from the fee charged, 13 per cent has to be paid as taxes and from the  remaining amount 10 per cent has to be remitted towards the DMT Emission Trust Fund and 90 per cent to the service provider.
At present this tax is being collected by the two service providers and under the budget proposal it should be directly remitted to the Treasury through MTD.
However the Finance Ministry should issue necessary guidelines to implement the new tax system in which the vehicle owners will have to pay the carbon tax which includes the emission testing fee as well.
The levying of carbon tax is to be delayed till the devising of the proper procedure and vehicle owners will have to obtain the VET certificate following the previous procedure.
The most common proposal for a carbon tax calls for the tax to start low and rise over time.
There are many options on how this tax would be applied, all of which have different impacts (on overall cost, effectiveness of raising revenue and reducing CO2, etc) depending on what is taxed, where the tax is implemented, and how the revenue is used.
But the government appears to have not considered any of those options.
It has just been introduced without even thinking of a methodology for implementation. It will take at least three months for the Treasury to come up with a proper system.
The Government could increase the revenue and encourage reductions in emissions of carbon dioxide (CO2) by introducing a carbon tax, which would either tax those emissions directly or tax fuels that release CO2 when they are burned (fossil fuels, such as coal, oil, and natural gas).
Emissions of CO2 and other greenhouse gases accumulate in the atmosphere and contribute to climate change-a long-term and potentially very costly global problem.
Although the government has shifted its priorities to minimise air pollution by promoting electric vehicles to a certain extent, it has failed to stick to a constant policy on eliminating the used vehicle and 3-wheeler dominance which has become a menace at present.
On one hand Sri Lanka is seriously considering the possibility of removing 15-years-and-over un-roadworthy vehicles numbering around 1.2 million from the roads to meet more efficient transportation needs of urban areas while introducing a carbon tax to tackle air pollution. However on the other hand this promotes the import of used vehicles, a major cause for carbon dioxide emissions.
This inconsistent policy stance is clearly demonstrated in the 2017 budget proposal in increasing the age limit for importing lorries and refrigerated trucks with capacity over 5 Metric tonne to 10 years to support local industries.
It is high time the government makes policies consistent as the country has missed the bus on several occasions during the past few decades.
(The writer is the past chairman of the Ceylon Motor Traders Association and currently Managing Director of Sathosa Motors PLC)Â Â