Additional 10% GST 'Pollution Tax' Maybe Considered On Diesel-Run Vehicles: Nitin Gadkari

India's Road Transport Minister plans to propose a 10% tax on diesel engine vehicles to the finance minister.

India's Road Transport Minister Nitin Gadkari said on Tuesday he plans to propose imposing an additional 10% tax on diesel engine vehicles.

The minister added he will make this proposal to the finance minister later in the day.

Possible Impact of Higher GST on Diesel-Run Vehicles

The implementation of the Goods and Services Tax (GST) in India, completed in July 2017, was designed to overhaul and simplify the existing taxation structure of the country.By streamlining multiple layers of provincial and federal taxes into one unified system, it promised to bring about better compliance, increased revenue, and boosted economic growth.

One of the major sectors that has been affected by this new taxation regime is the automobile and spare parts industry. Previously, this industry had to grapple with myriad taxations like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty, and so forth. With the coming of GST, all these different taxes were subsumed under a singular taxation structure.

GST's impact on the automobile and spare parts industry, true to most economic policies, has been a mixed bag. On the macro level, whether GST has indeed helped or hindered is a source of ongoing debate among industry experts, economists, and policymakers.

For starters, despite having a unified tax system, the rate of GST imposed varies across different categories. For instance, small and medium-sized vehicles attract a lower GST, while luxury vehicles attract a higher tax. This differential tax rate has created complexities and thwarted the concept of a uniform tax structure.

Moreover, the imposition of cess over and above the GST for certain category of vehicles, has led to a hike in prices, which has negatively influenced consumer buying behaviors. Furthermore, the issue of GST refunds has been a challenge, with delays impacting the working capital and liquidity of businesses in this sector.

Therefore, while the implementation of GST has undoubtedly simplified taxation to a considerable extent, it has also uncovered new challenges and complexities, the resolution of which would go a long way in truly fostering a unified market for the automobile and spare parts industry.