Call it the global warming impact: there could soon be an environment cess on coal and automobiles if the ministry of environment and forests has its way. The ministry has prepared a tax-neutral duty rejig proposal to incentivise environmental-friendly sectors while taxing polluting products.

So, while it has recommended a cess on coal that has high ash content and an eco tax on polluting automobiles, it has proposed excise concessions for industries like blended cement and bio-pesticides.

The environment ministry has already submitted the proposal to the finance ministry. It is proposed that a cess of 1.44-6.33% of coal price be levied on the basis of the ash content of coal. The lower the ash content, the less polluting the coal is when burnt.

It is also proposed that the revenue generated from the cess be used to set up a clean coal fund which could be utilised for setting up infrastructure for coal washing, selective mining research and clean coal technologies.

For automobiles, the ministry has suggested that an eco tax of 3%-5% be levied on the factory price of passenger cars, jeeps and two wheelers. The taxes have been derived on the basis of categorisation done by the Society of Indian Automobiles Manufacturers of vehicles based on their fuel economy.

The category that will be taxed is defined as the worst fuel economy category. The cess also takes into consideration the Euro emission norms which vary in states. The environment ministry has also asked for sops for environmentally friendly substitutes of chemical pesticides, cement and detergents.

It has said that the excise duty on bio-pesticides be cut to half which is otherwise 16% for all pesticides. The revenue implication of this has been found to be negligible since bio-pesticides account for less than 1% of the pesticide market.

Similarly, it is proposed that excise duty on non-phosphate detergents which is less hazardous be reduced to 8% from 16%, while a rebate of Cenvat elide on the phosphatic compounds. Keeping with the high quantity of fly ash waste generated by thermal power plants, it is suggested that the duty on the cement that is blended with fly ash be halved.

This would encourage blended cement manufacturers to increase their capacity utilisation because of which estimates show that the impact would be revenue positive, said a ministry official. The proposal is based on a study by the Madras School of Economics and the National Institute of Public Finance and Policy.

The ministry had earlier taken up a similar proposal with the revenue department but was asked to make the proposal more revenue neutral. A response to the modified proposal is waiting. Meanwhile, we are studying the prospects of other sectors where a tax rejig is possible, said a senior government official.