Why ‘One Nation One Road Tax’ is Against Federal Principles

There has been a lot of buzz about the 'Drive Without Borders' initiative in the social media for quite some time now. The initiative has also got some coverage in the mainstream media. It all started with the Government of Karnataka’s decision to crackdown on vehicles registered outside the state but were plying on the roads of Karnataka and were evading paying of taxes. There has been quite a bit of discussion on why this crackdown is bad for a section of people traveling in or moving into Karnataka from other states, so I am not going to discuss the same stuff here again. The focus of this post will be to analyse the 'Drive Without Borders' initiative, from the perspective of the federal setup of the Indian Union.

One of the primary demands of the initiative is to have a uniform road tax across India. On the surface, uniformity is appealing, but in reality the world is diverse, non-uniform and colourful. So, what does a uniform road tax mean to the states? As each state of the Indian union is different, revenues and expenditures vary greatly from state to state. It is the responsibility of the state governments to generate revenues as per their planned or required expenditure, including spends on primary healthcare and education, year on year. Apart from fuel, alcohol etc., road tax is one of those few avenues from which the states generate their taxes. So, any attempt to bring in a uniform tax system will badly affect their revenues.

Let us say, state A, as of today, stipulates 15% as the road tax to be paid. And let us assume, this is overruled by the Indian Union’s uniform road tax of, let us say, 10%. Now, this is will be a huge loss to the state's exchequer. This will have a direct impact on many of the development activities that the state may have planned to implement. Since such a state will be short of money to fund its planned development activities and other expenditure like those on education and health care, it is forced to look for other options to raise revenue. Only way is to squeeze more from whatever options that are left. 

The Indian Union, often referred to as a quasi-federal setup, has always had a heavy tilt of power towards the Centre. States are usually at the receiving end, and will have to operate in the limited space and revenue avenues available to them. There lies the root of the problem. The more you take away from them, the more they are forced to squeeze from the available opportunities. Instead, let states have their say in more subjects. This will only give them more space to plan out their respective expenditures well.

This is not just about revenue and expenditure but also about governance. A state with heavy vehicle density, for example, may want to stipulate a higher road tax to disincentivize individual vehicle buyers, encourage them to use public transport and thus reduce congestion. If road tax were made uniform, states will no longer be able to take such measures whenever the situation demands. 

There are other issues that ‘Drive Without Borders’ have brought forth. Like, the refunds from many of the state RTOs are tough to obtain. Also, many people think that imposing a life time tax if the vehicles are in the state for a mere 30-day period, is too much. These concerns are quite valid and should be taken up with the respective state governments, as roads are a state subject.

A letter written to the Transport Commissioner of Karnataka by the ‘Drive Without Borders’ team dated 28th April 2015, which the author could get a copy of, highlights the plight of people visiting the state for a short stay, and provides a few suggestions to the Government to rectify the situation. They have also added that they are with the Government of Karnataka to help curb the ‘menace’ of Pondicherry registered luxury vehicles that are evading the tax. 

Working with the state government is the right approach, and helps the cause that ‘Drive Without Borders’ team is working towards. However, trying to build a narrative to take away states’ power to levy road tax will only work against the cause.

 

Many, as expressed in some social media platforms, think it is discrimination to have different laws and rules in a single nation. Some have even gone ahead to call the different laws as racism. If that were the case, the most liberal and democratic countries, especially in the West, will have to be termed racist. For example, the USA has a much stronger federal structure and road transport related laws vary from state to state. 

 

In a country of one billion plus population and so much diversity, it simply does not make sense to have centralized laws throughout. The many ills that we see today are rooted in the centralized nature in which the Indian Union operates. Centralizing further will only worsen the situation.

 

(Image source: The Hindu)