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31 March 2017 Editorial


31 MARCH 2017

A clean-up act

No compromise over air quality

The Supreme Court’s direction to transport authorities to stop registering vehicles that do not meet Bharat Stage-IV emission standards from April 1 sends out the welcome message that short-term economic considerations cannot supersede public health concerns. Some automobile companies, notably those manufacturing two-wheelers and commercial vehicles, have suffered a blow as they must now deal with unsold inventories of the obsolete models. The 2017 deadline for a nationwide shift to BS-IV had been repeatedly emphasised in various forums, and reiterated by the Parliamentary Standing Committee on Petroleum and Natural Gas in its review of the Auto Fuel Policy nearly two years ago. But there was some confusion about whether April 1 was the deadline for the manufacture of BS-III models or their sale. Significantly, some automobile manufacturers themselves called for a decisive shift in favour of the higher emission standard, since they had invested in upgraded technologies over time. But it would appear that two-wheeler and commercial vehicle manufacturers made a costly miscalculation when they hoped for a repeat of the experience they had seven years ago, when the shift from BS-II to BS-III norms was carried out with a relaxation of deadlines often stretching across months. The Centre must share some of the blame, because it assured industry of a business-as-usual approach on a sensitive issue such as automotive emissions, even though producers were already equipped and meeting the higher norms in the bigger cities.

The court’s order means that a little over eight lakh BS-III vehicles will have to be either upgraded or sold abroad. As a total sum, this is a small fraction of the 19 crore vehicles on Indian roads today. It is unlikely that the court’s uncompromising approach will have a significant impact on reducing air pollution. But the message it sends out on air pollution is unmistakable. Research reported three years ago estimated that 30% to 50% of total on-road emissions came from vehicles older than 10 years, or about 17% of the fleet. The requirement for manufacturers to adjust to the new reality should serve as a reminder that they, and the fuel companies, must prepare for the next big deadline: an upgrade to the BS-VI standard by April 1, 2020, leapfrogging BS-V. More immediately, the Centre has to ensure that the objective of the Supreme Court’s order is met, and the ‘one fuel, one country’ goal for BS-IV is fulfilled. This is crucial to ensure that the catalytic converters of newer vehicles are not affected by lower-grade fuels. Liquidating obsolete inventory does pose a challenge for manufacturers, but this can be met through exports, technology upgrades or reuse of dismantled parts. The imperative is to shift to a clean fuel pathway.





Next steps on GST

Spirit of give and take must continue

The Lok Sabha has duly given its assent to necessary Central legislation to operationalise the Goods and Services Tax, nearly 17 years after the government began discussions on the prospects for a unified indirect tax regime across the country. It is eyeing a July 1 rollout for the GST, which will replace the multiple Central and State-level taxes and levies that make doing business in India a compliance nightmare today. The long and winding road for this reform, punctuated by political about-turns, has had a fairly straight trajectory in recent months, following the constitutional amendments last August. The GST Council has managed to thrash out a consensus on several issues relating to the administration and the legislative provisions for the new tax system within six months. The fact that apparently intractable positions held by the States as well as the Centre on the sharing of administrative powers, for instance, have been reconciled without the Council resorting to a majority vote inspires confidence. So does the alacrity with which the Centre has moved to secure Parliament’s nod for four enabling pieces of legislation within a fortnight of the Council’s approval. State Assemblies should do the same to pass the State GST law by holding special sessions if need be.

For Indian businesses that have been seeking the reform, it is now time to come to terms with the fine print and embrace the tax system. The GST Council, meeting again on 31 March 2017 to clear four pending sets of regulations, must sign off on which of the five GST rates will apply to different products and services. Clarity on the applicable rates will help industry alter their accounting systems, supply chains and pricing strategies. But some provisions in the GST laws have the industry in a tizzy. While the highest GST rate has been pegged at 28%, the integrated GST law has set a ceiling of 40%. Though an enabling provision, it gives the government too much leeway to alter the rate structure in coming years without seeking Parliament’s nod. Compare this to the cess ceiling of 15% on luxury cars, for instance, which are likely to see a 12% cess to start with. On several other fronts, the final laws haven’t changed much from their draft versions, despite industry red-flagging several provisions. These include the anti-profiteering clauses to curb ‘unjust enrichment’ of firms, the requirement for branch offices to register separately in each State, and treating all transactions between related parties (including head office and branch offices) as taxable. For the services sector, in particular, compliance requirements could go up multi-fold. It is still not too late for the GST Council to offer some exemptions or resist operationalising some of these provisions through the subordinate rules and regulations in order to address genuine industry grievances.

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