Central Idea

With the shift towards cleaner energy sources and the decline in oil consumption, governments are seeking alternative revenue sources to compensate for the loss of fuel tax income.
One such solution is the implementation of distance tax, a mileage-based user fee that can potentially mitigate revenue loss while encouraging sustainable transportation practices.

Understanding Distance Tax

Concept: Distance tax, also known as mileage-based user fees or road-user charges, is a taxation method based on motorists’ road usage and mileage. The tax is proportional to the distance driven, incentivizing responsible vehicle usage.
Variable Rates: Distance tax rates can be flat, calculated per kilometer, or variable based on factors such as location and time. It can also vary according to the vehicle type.
Technology Implementation: Distance tax can be tracked through various technologies like automatic number plate recognition, radio frequency identification, or GPS-based systems. The latter, especially using the GPS-based toll collection system, holds promise for implementation in India.

Revenue Recovery: As fuel consumption decreases due to the adoption of cleaner energy sources, distance tax offers a fuel-neutral method to recover lost tax revenue.
Encouraging Efficient Behavior: Distance tax promotes efficient vehicle usage, rewarding those who drive less and opting for environmentally friendly vehicles.
Managing Congestion: The tax can help manage traffic congestion by encouraging the use of small vehicles with lower carbon footprints.

Fuel Tax Increase: Raising fuel tax rates is an option, but it might not align with the transition to cleaner energy sources and could negatively impact consumers.
Annual Fees on EVs: Imposing annual fees on electric vehicles (EVs) could hinder the EV adoption rate.
GST and Toll Tax Increase: Hiking GST on EVs or increasing toll tax and electricity tax is politically challenging.

Oil Tax Dependency: Governments heavily rely on fuel tax revenues. In India, petroleum contributed to over 17.5% of the Centre’s revenue in 2022–23, and VAT on petroleum products accounted for 15% of all states’ and UTs’ revenue.
EV Transition Effects: The transition to EVs is predicted to reduce government revenue by 10.2%, equivalent to ₹1,457 crore, for Delhi by 2030. The Centre is also projected to lose 10% of its fuel tax revenue in Delhi due to EV adoption.

Gamification and Rewards: Develop a smartphone app that tracks a user’s distance traveled and calculates their distance tax.
Dynamic Pricing Based on Emission Levels: Implement a tiered distance tax system that charges vehicles with higher emissions more than those with lower emissions.
Green Corridors and Bonus Miles: Designate certain routes as “green corridors” with reduced or waived distance tax rates and offer bonus miles or credits to users who choose these routes.
Voluntary Reduction Challenges: Launch voluntary challenges where users commit to reducing their mileage for a set period.
Carbon Offset Integration: Provide users with the option to use a portion of their distance tax payments to support carbon offset projects, such as reforestation or renewable energy initiatives.

Distance tax stands out as a viable solution to balance revenue streams while encouraging responsible driving behavior and greener vehicle choices.
It addresses the challenge of declining oil tax income while promoting a shift towards cleaner transportation methods.