Business

Fuel consumption-based carbon tax gets Cabinet nod

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

The tax, which was introduced in January this year, is currently levied based on engine capacity.

However, this has been met with severe opposition from motorists throughout the year and has proven to be a challenge in implementation at the district secretarial level.

The proposal to revise the tax was approved by the Cabinet of Ministers last week. The Ministry of Finance has now requested the Legal Draftsman to draft the necessary amendments to the Finance Act for this purpose.

Speaking to The Sunday Morning Business, an official from the Ministry of Finance noted that the move comes following consultation with industry experts.

On 21 July this year, The Sunday Morning Business exclusively reported that the carbon tax would be revised by 2020, taking into account fuel consumption levels. However, it had not received Cabinet approval at the time.

A Finance Ministry official told us at the time that the revised tax based on the amount of fuel consumed by the vehicle is a system modelled on international best practices. As of early 2018, more than 25 national or subnational carbon tax systems were implemented or scheduled to be implemented around the world.

The current carbon tax is 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.

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.

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 Department of Motor Traffic (DMT).

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.

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 capacity, 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 capacity, other vehicles using petrol or diesel based 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.