Business

‘Collection snags led to carbon tax abolition’

The primary reason for the recently announced abolition of the carbon tax was the lack of tax collection by the relevant authorities and bodies, The Sunday Morning Business learns.

A senior official at the Ministry of Finance told us on condition of anonymity that there were several issues which prevented divisional secretariats, provincial councils, and the Department of Motor Traffic (DMT) from generating the expected revenue under the carbon tax.

However, observers say that the upcoming election may have led to this decision as it has faced sustained opposition from vehicle owners who form a significant segment of the voting population. Therefore, it has proven to be a challenge in implementation, particularly at the district secretarial level.

The Ministry official, however, refused to comment on this speculation and attributed the abolishment of the tax solely to the lack of collection.

The carbon tax on all registered motor vehicles excluding electric vehicles came into effect from 1 January this year under the Finance Act No. 35 of 2018. The tax is currently levied based on engine capacity. According to the Act, the registered owner of any vehicle has to pay the tax every year, other than the first year of registration of the motor vehicle, to the respective divisional secretariat on or before the due date of the annual renewal of registration.

Thereafter, the divisional secretary remits the collected carbon tax to the DMT. At the moment, carbon tax is being collected based on the vehicle’s engine capacity, age, and the fuel type used by the vehicle.

Accordingly, along with considering vehicles’ engine capacities, hybrid vehicles using petrol or diesel and manufactured less than five years ago are being charged Rs. 0.25 per cubic centimetre, while engines manufactured between five and 10 years ago are being charged Rs. 0.5, and engines manufactured more than 10 years ago are being charged Rs. 1.

While considering their engine capacities, other vehicles using petrol or diesel and manufactured less than five years ago are being charged Rs. 0.5 per cubic centimetre, while engines manufactured between five and 10 years ago are being charged Rs. 1, and engines manufactured more than 10 years ago are being charged Rs. 1.5.

Passenger transport buses manufactured less than five years ago are being charged Rs. 1,000 while buses manufactured between five and 10 years ago are being charged Rs. 2,000, and buses manufactured more than 10 years ago are being charged Rs. 3,000.

Accordingly, the applicable rates for motorcycles, cars, and passenger busses would be around Rs. 0.17, Rs. 1.78, and Rs. 2.74 per day, respectively.

Presenting the Budget 2018, Minister of Finance Mangala Samaraweera noted that the carbon tax was expected to generate government revenue of Rs. 2.5 billion, which would be used to protect the environment.

However, since then, vehicle owners have demanded for a revision of this tax as it was levied based on neither carbon emissions nor the amount of fuel consumed by the vehicle, thereby failing to penalise the people that contribute most to air pollution.

Following sustained consumer lobbying, the carbon tax on vehicles was set to be levied based on the fuel consumption rate of the vehicle from January next year.

Two weeks ago, the Ministry of Finance announced that the carbon tax on vehicles is set to be levied based on the fuel consumption rate of the vehicle from January next year.

The proposal to revise the tax was approved by the Cabinet of Ministers on 9 October and the Ministry of Finance requested the Legal Draftsman to draft the necessary amendments to the Finance Act for this purpose.

Speaking to The Sunday Morning Business at that point, an official from the Ministry of Finance noted that the move came following consultation with industry experts and the aforementioned sustained consumer lobbying.

However, the Ministry has now gone ahead and decided to abolish the carbon tax.