Govt may backtrack on environmental surcharge on govt firms’ vehicles

The government may backtrack on its decision to impose an environmental surcharge on vehicles owned by government authorities, departments and private companies, according to finance ministry officials.

They mentioned that the government wants to continue the environmental surcharge on second vehicles – SUVs and cars – owned by individuals, during registration and renewal.

"Due to some system errors, in some cases BRTA officials have failed to realise the environmental surcharge. As a result, the government has decided to bring some changes to these rules, which will be effective from the next fiscal year," according to a senior official of the National Board of Revenue (NBR).

Experts and economists said if government and company vehicles are exempted from environmental surcharge, the aim of revenue realisation from this sub-sector will not be successful. If the government really wants to consider climate change and environmental issues, it should take some measures to impose direct tax like the developed countries.

Talking with The Business Standard, M Masrur Reaz, chairman and CEO at Policy Exchange Bangladesh (PEB), said the government should reconsider the decision and at least impose an environmental surcharge on vehicles owned by corporate companies.

He said the environmental surcharge is a good fiscal tool to control the overburden of vehicles on city roads, considering the inadequate infrastructure. It is also helpful in controlling fossil fuel-run vehicles, he added.

Sources said NBR Chairman Abu Hena Md Rahmatul Muneem on Tuesday met Prime Minister Sheikh Hasina to discuss some issues including this. During the meeting, the PM provided specific directives.

Following the meeting, the NBR chairman convened a session with officials involved in budget matters and issued necessary instructions. The policy changes issues have already been sent to the law ministry for legal batting.

The changes will be incorporated in the finance bill 2024, which is expected to be approved in parliament on 29 June.

A senior NBR official said, "The BRTA has raised an issue, stating they are facing challenges in realizing environmental surcharges on government vehicles, as these vehicles are exempted from advance income tax. Consequently, there is now a move to exempt government and company vehicles from environmental surcharges."

Bareesh Hasan Chowdhury, a research lawyer at the Bangladesh Environmental Lawyers Association, told TBS, "We have observed that the government often initiates policies that sound good but fail to deliver real or beneficial outcomes."

He added that if the government intends to address climate change effectively, it should consider imposing direct taxes on vehicles contributing to carbon emissions. This could involve higher taxes during registration, increased registration fees, or elevated taxes on fuel for such vehicles.

Referring to the UK government's initiative, he said London has been designated as an Ultra Low Emission Zone (ULEZ) to enhance air quality, benefit public health, and combat climate change. Non-exempt vehicles failing to meet ULEZ emissions standards are required to pay a daily charge of £12.50 to operate within the zone, as per ULEZ regulations.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, said, "The primary objective of imposing taxes is to generate revenue and reduce inequality. However, in Bangladesh, we observe disparities in tax rates between individuals, corporate entities, and government."

She added, "Lobbying often takes precedence over logical reasoning without justification, which is unacceptable."

"In the 8th Five-Year Plan, the government has committed to gradually implementing a carbon tax," Fahmida said. "While it is not necessary to adopt everything from developed countries, we must implement measures aligned with our socio-economic context."

In the FY24, the government introduced the environmental surcharge, also known as the carbon tax, aimed at reducing carbon emissions, addressing urban traffic congestion, and promoting public transport.

The carbon tax rates will depend on the vehicle's engine capacity, with higher-capacity vehicles subject to higher taxes if multiple vehicles are owned.

Furthermore, according to income tax law, the tax rate is 50% higher for each additional motorcar owned by a taxpayer.

According to the finance bill, taxpayers with multiple cars will face an additional tax ranging from Tk25,000 to Tk3,50,000 during registration or renewal of a second car.

The finance bill also stipulates that if a taxpayer fails to pay the environmental surcharge on time, it must be settled during the vehicle's registration renewal. Alternatively, the deputy tax commissioner will collect the amount during tax return processing.

Currently, many countries differentiate tax rates related to emissions in their taxes on motor vehicle purchases or usage. Some countries also base tax rates on the fuel efficiency of vehicles, which correlates closely with emissions.