Auto Shares Decline As Govt Proposes Green Tax On Old Vehicles

On Wednesday, shares of automobile companies, including tyres and auto ancillaries companies, declined as investors booked profit after the government proposed the introduction of 'green tax' on old vehicles.

Shares of Ashok Leyland, Bharat Forge and Tata Motors declined in the range of 3 to 4%, while Eicher Motors, Motherson Sumi Systems, Balkrishna Industries, MRF, Hero MotoCorp and Amara Raja Batteries slipped 1 to 2%.

According to a Business Standard report, Union Minister for Road Transport and Highways Nitin Gadkari said on Monday that his department has approved a proposal to levy 'green tax' on old vehicles polluting the environment. However, before being formally notified, the proposal will have to go to the states for consultation.

The report said that as per the proposal, a green tax will be imposed on transport vehicles older than eight years at the time of renewal of the fitness certificate, at the rate of 10-25% of road tax, while personal vehicles will also be charged the same levy at the time of renewal of registration certification after 15 years.

However, public transport vehicles, such as city buses, will be charged a lower green tax.

In the case of vehicles being registered in highly polluted cities, a higher green tax (50% of road tax) and a differential tax, depending on the fuel (petrol/diesel) variant and type of vehicle, will be charged.

According to Motilal Oswal Securities, the green tax would raise the cost of doing business for small fleet operators using commercial vehicles older than 8 years, however, the cost may not be material enough to buy new vehicles. However, the brokerage added that the expected scrappage policy, along with the green tax, can be effective in spurring demand for new vehicles.