Fuel cess may oust road tax

A key recommendation of the Planning Commission that aims to reduce the cost of buying cars and commercial vehicles has been put up for discussion at the National Development Council meeting to be held this October or early November.

An empowered sub-committee of the council, chaired by the prime minister and comprising chief ministers, will take a final call on recommending whether the road tax and the national permit fee for vehicles be replaced with a uniform surcharge on petrol and diesel. If accepted, the suggestions may make it to the next Budget.

The aim is to reduce barriers for internal trade. "If the recommendation is implemented, it will do away with the up-front payment of road tax on purchase of new cars and other vehicles, in the process reducing the cost of acquisition of these vehicles," the Planning Commission has said.

Stating that the system would be free from administrative hassles and rational as the amount collected would depend on the extent of use of the vehicle, the commission has said the surcharge collected by retailers and dealers on petrol and diesel be transferred to states in which the tax was collected, such as in sales tax or value-added tax collection.

To encourage greater use of multi-axle vehicles, which reduce wear and tear of roads, the panel also wants the government to charge lower rates of excise duty on these vehicles.

The Constitution specifies that "road tax" and "permit fee" be levied and collected by state governments. However, there is a lot of disparity in these rates among various states.