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Should the government waive taxes on cycles bought by poor people?

Wednesday, 27 August 2014 - 5:40pm IST | Place: New Delhi | Agency: PTI

Government should waive the taxes on cycles bought by low-income population to promote their use, a report released by the Energy and Resources Institute (TERI) said today. "It is proposed that the government should waive the taxes on cycles consumed by low-income population. If the 12 per cent tax component (6.8 per cent going to central government and 5.2 per cent going to state government) is absorbed by the government, the price of the cheapest cycle can be brought down and we can expect the cheapest cycles in the country to cost in the range of Rs 2,500– Rs 4,500," said the report titled Peddling towards a Greener India: A Report on Promoting Cycling in the Country".

Discussions with stakeholders and surveys indicate that this customer segment is highly price sensitive and any decrease or increase in price of cycle can affect their ability to purchase the cycle. Data from domestic cycle manufacturers shows that they sold nearly 5 million cycles in 2012–13 that had a price below Rs 3,000 (average price of about Rs 2,900) and nearly 1.6 million cycles that had a price range between Rs 3,000–6,000 (average price of about Rs 4,500).

"If we would have subsidized these many cycles, i.e., about 6.6 million cycles in 2012–13, which are primarily bought by low-income population by waiving 12 per cent tax component, the burden on the exchequer would have been to the tune of nearly Rs 260 crore (about Rs 150 crore for central government and Rs 110 crore for state government)", the report said. On the issue of subsidizing, the report says that if motor vehicles or fuels can be subsidized, then why not cycles? Cycles are one of the most clean and the most sustainable forms of transport. In addition to their environmental contribution, cycles for low-income population are a means to enhance their socio-economic well-being.

A subsidy of Rs 260 crore or more to cycles does not seem to be high, given that we are spending thousands does not seem to be high, given that we are spending thousands of crores for subsidizing personal vehicles despite huge negative externalities associated with them, it said.

The report also drew comparison with China. It said that every household in rural China owns a cycle, as compared to less than 50 per cent households in rural India. Household cycle ownership increased at a rate of about 3 per cent per annum between 2001 and 2011. Nearly 45 per cent households, about 111 million households in India owned bicycles in 2011 which was just marginally high as compared to 2001, 44 per cent households (84 million households) owned cycles in 2001. According to the report, China's urban cycle ownership level is also higher as compared to India. A comparison of the price of the cheapest available bicycle as a percentage share of per capita annual income in rural India shows that the price of cheapest available bicycle in India is about 15 per cent of the annual per capita income in rural areas. A comparison of this situation with China indicates that the price of the cheapest cycle in China represents only 2.5 per cent of the annual per capita income in rural areas. "Given this difference between India and China, it would not be difficult to argue that rural population in China would find it easier to buy a cycle than their rural counterparts in India," the report said.

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