TAXATION & ITS IMPACT ON PUBLIC TRANSPORT

TAXATION & ITS IMPACT ON PUBLIC TRANSPORT Overview, Policy Distortions, and Potential Reforms AMIT BHATT, DIRECTOR INTEGRATED TRANSPORT, WRI INDIA

OVERVIEW Study Overview Taxes applicable to State Road Transport Undertakings Classification and Composition of Taxes Paid Recent Trends in Direct and Fuel Taxation Contribution of Taxes to SRTU Financial Instability

STUDY OVERVIEW 10 State Road Transport Undertakings Studied (5 City Operators and 5 State Operators) Study covered both direct and indirect (primarily fuel) taxes liable by these Undertakings Data on direct taxation from 2010 to 2015 analysed RSRTC GSRTC DTC UPSRTC Data on indirect taxation from 2012 to 2015 analysed BEST CSTC Evaluated variations in tax across states Compared taxation on State Road Transport Undertakings with taxation of private vehicles KSRTC BMTC APSRTC MTC

TAXES APPLICABLE TO STATE ROAD TRANSPORT UNDERTAKINGS Property Tax Excise Duty 13 taxes commonly levied on State Road Transport Undertakings VAT/Sales Tax Motor Vehicle Tax Customs Duty Passenger Tax Not every State Road Transport Undertaking is liable for all taxes mentioned here (for example, Passenger Tax is not levied in every state) Labour Cess Advt. Tax Entry Tax Service Tax Stamp Duty Octroi Municipal Levies

MOST TAXES ACCRUE TO THE STATE GOVERNMENT ON AVERAGE, 85% OF SRTU TAX REVENUE ACCRUES TO THE RESPECTIVE STATE* Excise Duty CENTRAL TAXES Customs Duty Service Tax STATE TAXES Property Tax Stamp Duty MV Tax Advt.Tax Passenger Tax VAT/Sales Tax Entry Tax/Octroi Labour Cess Municipal Levies *As of 2014/15, the latest year for which comprehensive data is available.

MORE DIRECT TAXES, BUT HIGHER EXPENDITURE ON INDIRECT TAXES DIRECT TAXES On assets owned (movable and immovable), bus capacity available, and revenue earned from passenger traffic and other heads) INDIRECT TAXES The tax component of items purchased by SRTUs for bus operations (buses, spare parts, diesel) MV Tax Property Tax Excise Duty VAT/Sales Tax Passenger Tax Stamp Duty Customs Duty Entry Tax/Octroi Advt.Tax Service Tax* Labour Cess Municipal Levies *Service tax on revenue from operating air-conditioned services. Service tax can also be treated as an indirect tax in some cases for example, when it is added to the total cost of work billed to SRTUs by contractors.

MORE DIRECT TAXES, BUT HIGHER EXPENDITURE ON INDIRECT TAXES Taxes on diesel are the most significant component of indirect taxes Composition of Costs for Reporting SRTUs, 2015 Taxes levied on diesel include Customs Duty, Excise Duty, Sales Tax/VAT, with certain states imposing Octroi and Entry Tax as well Excise Duty on diesel has increased by 900% since April 2012.

TRENDS IN DIRECT TAXATION The most significant direct taxes are Motor Vehicle Tax and Passenger Tax When measured in the context of SRTU revenue, direct taxes have not increased significantly in recent years.

TRENDS IN DIRECT TAXATION The most significant direct taxes are Motor Vehicle Tax and Passenger Tax When measured in the context of SRTU revenue, direct taxes have not increased significantly in recent years.

TRENDS IN DIRECT TAXATION The most significant direct taxes are Motor Vehicle Tax and Passenger Tax When measured in the context of SRTU revenue, direct taxes have not increased significantly in recent years. However, as is evident, there exists wide variation in the effective rates of direct tax paid by SRTUs across different states.

TRENDS IN INDIRECT (DIESEL) TAXATION Operators have, in general, witnessed an increase in the total taxes paid on diesel from 2012 to 2015 (APSRTC is an exception due to the state s bifurcation)

TRENDS IN INDIRECT (DIESEL) TAXATION Operators have, in general, witnessed an increase in the total taxes paid on diesel from 2012 to 2015.

TRENDS IN INDIRECT (DIESEL) TAXATION City operators face a proportionately higher tax outlay on diesel than state operators This is due to their lower fuel economy as a result of operating in city conditions. Proportion of Tax Expenditure on Major Direct Taxes (Motor Vehicle and Passenger Tax) vis-à-vis Taxes on Diesel (Excise Duty and State Taxes) 2012-15 City Operators State Operators *DTC has not been included in this comparison due to its buses being operated on CNG. BEST too has a component of its fleet that runs on CNG.

TRENDS IN INDIRECT (DIESEL) TAXATION Unfortunately, adequate data is not yet available to estimate the total taxes paid on diesel by SRTUs after 2015. However, steep increases in Excise Duty suggest it will have increased manifold.

IMPACT OF TAXES ON SRTU FINANCIAL POSITIONS As of 2014/15, the tax outlay of most SRTUs studied exceeded (or nearly reached) their losses for the year:

POLICY DISTORTIONS Huge Variations in Direct Tax Rates across States Higher Rates of Motor Vehicle Tax for SRTUs than Private Vehicles No Distinction in Tax Rates on Diesel for Retail and SRTU Consumers Taxation on a Commercial Basis despite Social Obligations

HUGE VARIATIONS IN DIRECT TAX RATES ACROSS STATES States compute Motor Vehicle Tax in widely differing ways: Sl. Method Description 1 Revenue As a percentage of traffic revenue of the SRTU; 2 Capacity Based on the total number of bus seats being offered by the SRTU; Based on the total capacity (seats + standees) offered by the SRTU; 3 Route type As a function of the type of route being served (city, suburban, ghat, A class, B class etc); As a function of the total distance of the route; 4 Bus type Taxation derived from the class of service being operated (ordinary, deluxe, express etc); Taxation based on whether the bus is intended for regular operation or is a spare...taxation can also be a combination of more than one method For example Tamil Nadu, which levies Motor Vehicle Tax on the capacity of the bus, with different rates for different types of routes, and a lower tax levy for spare buses.

HUGE VARIATIONS IN DIRECT TAX RATES ACROSS STATES As a result, the effective tax rate varies considerably across SRTUs. As seen below, Haryana Road Transport Corporation s tax levy was 15 times higher than that of the Metropolitan Transport Corporation, Chennai in 2015.

HIGHER RATES OF MOTOR VEHICLE TAX FOR SRTUS THAN COMMERCIAL VEHICLES

NO DISTINCTION IN TAX RATES ON DIESEL FOR RETAIL AND SRTU CONSUMERS Unlike several other countries, India does not levy higher taxes on petrol and diesel for retail consumption (to discourage private vehicle use as well as fund public transport) Between 2013-15, diesel supplied to bulk consumers was charged at a higher rate than fuel supplied to retail consumers, effectively incentivising private vehicle usage. Excise revenue from SRTUs as a result of their diesel consumption is estimated at just 3.36% of total excise revenue from petroleum products.

SRTUS: SOCIAL OBLIGATIONS, TAXATION AT COMMERCIAL RATES Operational Requirements Lack of autonomy in fare-setting Mandated to operate on lowdensity, low-demand route to ensure connectivity Required to provide subsidised passes to various economically disadvantaged sections of society Not a purely commercial venture. Taxation Policies Taxed as commercial entities High rates of direct tax, in several cases more than 10% of revenue Direct taxes for SRTUs higher than for private vehicle users in several states No rebate on taxes on fuel, except in Rajasthan

POTENTIAL REFORMS Harmonising Motor Vehicle Tax for SRTUs across States Supporting SRTUs through Higher Motor Vehicle and Fuel Tax from Private Road Users

HARMONISING MOTOR VEHICLE TAX FOR SRTUS ACROSS STATES Ideally, a single method of computation of Motor Vehicle Tax should be followed across the country, with marginal changes in tax rates across states acceptable. Administratively, basing Motor Vehicle Tax on SRTU revenue is the least complicated method. However, if this method is followed, care should be taken to ensure that the effective rate of Motor Vehicle Tax for SRTUs remains lower than the rate for private contract carriage operators. Private contract carriage operators are usually levied Motor Vehicle Tax based on vehicle capacity, and are not subject to the same restrictions on faresetting as SRTUs.

STATE TAX REDUCTIONS Given the variations in tax rates across states, it is difficult to suggest a single tax policy to be followed. For example, direct tax receipts from SRTUs contribute different amounts to the respective Transport Department: Sl. State Number of Reporting SRTUs Transport Department Revenue (INR Million) Revenue from SRTU Direct Tax (INR Million) % of Revenue from SRTU Taxes 1 Andhra Pradesh 1 16,991.9 3,789.5 22.30% 2 Gujarat 2 28,175.3 2,620.2 09.30% 3 Karnataka 4 44,562.3 4,157.2 09.33% 4 Maharashtra 6 57,982.2 11,205.2 19.33% 5 NCT (Delhi) 1 13,869.6 213.7 01.54% 6 Rajasthan 1 22,320.3 1,492.6 06.68% 7 Tamil Nadu 7 38,291.4 1,849.8 04.83% 8 Uttar Pradesh 1 37,969.6 3,520.9 09.27% 9 West Bengal 3 14,823.3 53.3 00.36% However, in general, states should look to reduce their dependence on revenue from SRTU taxation, gradually offsetting this through an increase in taxes on private users.

THANK YOU abhatt@wri.org