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What is Green Tax and New Scrappage Policy? How they complement each other? Will they succeed?

What is Green Tax and New Scrappage Policy? How they complement each other? Will they succeed?


  • GS 3 || Environment || Environment & Ecology || Pollution

Why in news?

  • The Centre plans to notify a system of imposing a “green tax” on older vehicles in a move to disincentivize the use of polluting vehicles and to curb pollution in the country.

 Key Highlights of the policy

  • The Ministry of Road and Transport is yet to announce the proper guidelines. But according to the Budget speech, the important provisions of the scrappage policy will include the following features. Such as
  • Older Government Vehicles
    • Private vehicles older than 20 years and commercial vehicles older than 15 years, can be scrapped voluntarily. To run these vehicles on the road, a fitness certificate (FC) will be mandatory.
    • The government is expected to provide monetary incentives to the owners scrapping the vehicles.
  • Vehicle fitness certificate
    • Automated vehicle fitness centres belong to the government will issue certificates after conducting fitness tests.
    • Each fitness test will approximately cost Rs 40,000. If the vehicle passed the fitness test, the owner of the vehicle has to pay road tax, and a possible “Green Tax” (Tax levied on goods that cause environmental pollution).
    • Each fitness certificate is valid for five years. After that vehicle will undergo another fitness test.
    • If a vehicle fails the fitness test, the government will not provide renewed Registration Certificates (RC) for those vehicles.
    • As per the Motor Vehicle Act, 1988, driving a vehicle without an RC is illegal in India.
    • Each vehicle is permitted to have three failures in the fitness test. After that, the vehicle might be forwarded to vehicle scrapping.
  • Additional Road Tax on Older Vehicles
    • Among the major features of the measure is a 10%-25% additional green tax on the road tax payable by commercial transport vehicles that are older than eight years at the time of fitness certification renewal, and for personal vehicles after 15 years.
    • Exemptions:The policy provides exemptions for tractors, harvesters, and tillers used in farms, hybrid, electric, and ethanol, liquefied petroleum gas (LPG), and compressed natural gas (CNG)-powered vehicles.
    • Green tax: The total cost involved in pursuing a Fitness test and paying “Green tax” will act as a deterrent to have older vehicles. This will further facilitate voluntary Scraping off the old vehicle and buying a newer one.
    • Incentivising Mass Transport:The policy proposes a lower green tax for public transport vehicles such as buses.

Is the proposed policy for scrappage workable?

  • During the drafting phases in 2015, Transport Minister Mr. Gadkari said the idea was to give a certificate to owners selling old vehicles of a defined age, which could be redeemed for new passenger vehicles for a discount of ~30,000 to50,000.
  • The benefits, including taxes, will be an estimated ~1.5 lakh for a commercial vehicle. However, this definition did not advance, and NITI Aayog was among those who expressed reservations about high expenses.
  • Due to the high capital cost, the Aayog was worried that some parts might not be in a position to remove old vehicles.
  • The present initiative, however, has the limited objective of nudging the owners of older vehicles to sell them off rather than pay a green tax penalty.
  • Without sufficient incentive or penalty, and careful targeting of vehicles with knowledge of their condition, a tax penalty could be less of a disincentive to commercial vehicle owners, since the tax would be far lower than its resale value and earnings potential; there would be no compulsion to retire it.

Benefits of the proposed policy

  • First, at one point, the Scrappage strategy would support the following sectors.
    • The domestic car and automobile industry will be stimulated by the policy. If this strategy is enforced correctly, the automotive industry is expected to expand at an annual pace of 22 percent.
    • Also, it will provide players in the coordinated scrapping and recycling sector with a huge opportunity. Scrapping will allow for the recovery of steel, aluminum, plastic,, which will improve the related industries.
  • Second, Curbing air pollution: Old vehicles do not comply with emissions requirements for Bharat Stage VI. This leads to more emissions in the environment.
    • One 15-year-old car, for instance, has emissions equal to 25 new-generation vehicles. Compared to old commuter cars, the scrappage programme would decrease the emission level by 25 percent.
  • Third,the government’s rise in tax revenue: Tax receipts will be driven by the resurgence of cars and other relevant industries. Taxes from the automotive sector would amount to Rs 10,000 Crores, according to an estimate, if the scrapping policy is properly enforced.
  • Fourth, Oil imports: India has to implement the scrapping of old vehicles and move to higher fuel quality requirements, according to the BEE (Bureau of Energy Efficiency) estimates.
    • If it is done, “there will be a reduction of 97 million tonnes of fuel demand in India by 2025,” as predicted by the BEE. This will help to save on oil imports and related costs.
  • Fifth, Upholding the International Obligations of India: India has committed itself to the Paris Agreement on Climate Change and has set national emission reduction goals.
    • The Scrappage strategy will reduce the level of emissions and also fulfill the promise of India to reduce the level of CO2 to combat climate change.
  • Overall, the Scrappage Strategy has the potential to revive the Indian Steel industry and also has the opportunity to promote India as a worldwide vehicle development center.

Way forward

  • Extended Producer Duty (EPR) should be included in the collection of the car for scrapping in a separate attempt. Apart from that, legally binding scrapping laws should be in place.
  • Replacement of old vehicles with EVs should be encouraged by the scrappage scheme. On the other hand, a strategy to minimize the purchase of conventional petroleum-powered vehicles should also be framed by the government.
  • By 2030, the Scrappage programme can achieve the government-set target of 30-40% electrification of the fleet of vehicles.
  • But it can only be sustainable if the government provides sufficient funding for electric vehicles, such as by providing the required charging infrastructure, producing battery packs, etc.

 Mains model question

  • In addition to being economically and environmentally viable, the transition to electric vehicles has the potential to bring about a change in India’s foreign policy. Study the steps taken so far by India with a view to encouraging the progression towards electric vehicles.