Carbon tax coming for 2nd car

The government is likely to introduce carbon tax for the first time from the next fiscal year with the aim of reducing carbon emissions, addressing city traffic congestion, and promoting the use of public transport.

According to finance ministry officials, taxpayers who own multiple cars will have to pay an additional tax ranging from Tk25,000 to Tk2,00,000 during the registration and renewal of a second car.

The carbon tax rates will depend on the vehicle's engine capacity and tax will be fixed on the higher capacity vehicle in case of multiple ones. 

These proposals were discussed at a recent meeting chaired by Finance Minister AHM Mustafa Kamal and will be presented to Prime Minister Sheikh Hasina for approval on 14 May.

The officials said that the government is planning to propose the carbon tax in the budget for fiscal 2023-24. 

Experts and economists believe that it would be a good initiative, but it should prioritise environmental issues rather than revenue generation, otherwise, it may become another form of wealth tax.

Speaking to The Business Standard, Bareesh Hasan Chowdhury, research lawyer at the Bangladesh Environmental Lawyers Association (Bela), said, "Carbon taxes are an interesting innovation but we have to remember this is both environmental policy and tax policy."

"We have to be careful to make sure that the tax net actually covers the target audience. The tax, if it aims to actually reduce carbon emissions and vehicle usage, needs to be designed to be fit for purpose," said Chowdhury, also regional facilitator at Friends of the Earth Asia Pacific.

Mohammad A Razzaque, research director at the Policy Research Institute, said imposing carbon tax without prior notice or within a short notice will not be rational.

"If the government wanted to impose a carbon tax, it needed to develop a policy and consult people before that," he added.

But it seems their intention is more of revenue collection rather than curbing carbon emission, he said referring to the UK which has warned its people that it will impose carbon tax from diesel-driven cars after 2030.

In the current fiscal year, the government increased supplementary duty on motor vehicles while the supplementary duty on the import of 2001 CC to 3000 CC cars has been increased to 250% from 200% and for cars of 3001 CC to 4000 CC, it has  been hiked to 500% from 350%.

The higher slab of AIT rate on cars with engine capacity above 3500 CC have to pay Tk2,00,000 during registration or renewal, which was Tk1,50,000 earlier.

Moreover, according to the income tax law, the rate of tax is 50% higher for each additional motorcar if the owner has two or more motorcars.

Currently, many countries are applying some form of emission related tax rate differentiation in their taxes on either the purchase or the use of motor vehicles.

There are also a number of countries where the tax rates depend on the fuel efficiency of the vehicles in question – which is closely linked to their emissions.

According to BRTA data, there are 3, 91,491 cars while a total of 52,92,440 vehicles are on the country's roads that have BRTA registration till 30 June 2022.