Bengaluru: The Karnataka government has passed a bill in the legislative assembly to impose an additional cess on new motor vehicle registrations, in line with what appears to be its broader policy of hiking taxes on goods and services to bolster revenue.
On Tuesday, the Karnataka assembly approved an amendment to the Karnataka Motor Vehicles Taxation Act, 1957 which introduced a registration cess of Rs 500 and Rs 1,000 on private two-wheelers and cars. The government said the additional funds would be used for a welfare fund for transport industry workers.
“There are about 30 lakh people directly involved in the transport sector, including drivers, mechanics and other staff. We have also made a board for their welfare and this additional cost will become a permanent source of funds,” Ramalinga Reddy, Karnataka’s minister for transport, told ThePrint.
According to the minister’s estimates, the additional cess was likely to generate around Rs 300 crore a year which would be allocated for the Karnataka Motor Transport and Other Allied Workers Social Security and Welfare Fund. The fund was created earlier this year through passage of The Karnataka Motor Transport and Other Allied Workers’ Social Security and Welfare Act, 2024, which received the governor’s assent in March.
The Congress-led government introduced the tax despite fierce opposition from the Bharatiya Janata Party (BJP), which says the government is forced to raise revenues because its funds are tied up in the implementation of its five guarantee schemes.
“People are already burdened and the government earlier hiked taxes on fuel. Why are you levying an additional cess on vehicles? Do not burden the people anymore,” R. Ashoka, Leader of the Opposition, said when the bill was tabled in the assembly’s ongoing winter session.
The state government denies any fund crunch. But with an estimated Rs 60,000 crore tied up in its five guarantee schemes each year and revenue streams from the Union government drying up in the post-GST regime, the state government is looking at all possible avenues to bring in capital.
Since the Congress stormed to power last year, the Karnataka government has increased taxes on various commodities and services including stamps and registration, fuel, liquor, water and royalty on mines. “The government has no resources and wants to announce new programmes. With everything tied up to the guarantees, they have resorted to taxing the people,” C.N. Ashwath Narayan, BJP legislator and former minister, told ThePrint.
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Offsetting debt burden
Reddy said the additional Rs 500 and Rs 1,000 cess would not make much of a difference to consumers buying new two-wheelers or four-wheelers, But the same money could be utilised to fund the welfare of persons working in the transport sector.
According to government data, 1,64,332 new vehicles in eight non-transport categories were registered in November. This includes 1,36,256 two-wheelers and 21,261 cars.
Bengaluru accounts for the biggest chunk of new vehicles, driven by increasing reliance on private transport due to lack of mass transit options and delays in completion of projects like multiple lines of the Namma Metro and sub-urban rail as well as stagnation in the expansion of public bus fleets.
In June, the Siddaramaiah-led government increased the state sales tax on petrol and diesel from 25.92 percent to 29.84 percent and from 14.34 percent to 18.44 percent respectively. It justified the decision saying that the move was aimed at “bringing down the price differences on the same commodity in neighbouring states”.
The increase is expected to bring in about Rs 3,000 crore annually.
In February, the state government implemented a massive 200-500 percent increase in stamp duty charges for all documents that do not require registration. This includes 25 categories of documents including partition and adoption deeds, affidavits and hypothecation of moveables.
In August, Deputy Chief Minister D.K. Shivakumar proposed increasing water prices by 20-30 percent.
A senior government official had earlier told The Print that the state does not face a fund crunch but it needs to increase revenues to manage the rising debt burden and cover borrowings incurred in the last quarter of the fiscal year.
Reddy accused the previous BJP government between 2019-2023 of leaving a big debt burden which the Congress has to address. According to the minister, the BJP government accumulated debts of over Rs 90,000 crore, including about Rs 5,900 crore in the transport department, Rs 6,000 crore in the Bengaluru city corporation, and another Rs 3,500 crore in the Rural Development and Panchayat Raj (RDPR) department. “What has happened is that we have to pay interest rates, and announce new development programmes. And we also have our guarantees. This year, we may have some (financial) problems. But our chief minister is confident that from next year, everything should be fine,” Reddy said.
The BJP defended its borrowing policy, saying the funds were used for capital expenditure. “Our government took loans within permissible limits and invested them for capital expenditure. This government is also borrowing under the permissible limit but using it for guarantees. That’s the difference,” Ashwath Narayan said.
(Edited by Sugita Katyal)