Road user tax: A broader view

The Roads and Highways Department is responsible for construction and maintenance of the land arteries in Bangladesh. It's a big headache for the government in view of the limited budgetary allocation for the purpose. Public representatives are answerable to their constituencies for construction of new roads as well as maintenance of the existing ones. Proper maintenance and management of roads are important for the economy. Improved road maintenance is a major element of the country's economic management.
As per data of the government, the overall maintenance cost has been put at Tk 70.913 billion in the fiscal year 2012-2013, Tk 20.099 billion in 2013-2014, Tk 13.322 billion in 2014-2015, Tk 11.470 billion in 2015-2016 and Tk 10.358 billion in 2016-2017. This proposed budget is not aimed at improvement of the road condition but repair of the roads to put them back in the original conditions.
The best option to generate funds for road construction and maintenance is the road user tax. Road users are required to pay tolls for using bridges and some toll roads. However, road user taxes must be distinguished from the general consumption tax, the value-added tax (VAT), which is levied on a wide range of goods and services including road use (through fuel, motor vehicles, etc.) paid by road users.
It is important to make a few points on the 'road use costs'. The definition of road use costs varies from country to country. And even within a country the definition varies. The Department of Transport in the UK calculates the amount of public money spent on construction, maintenance and policing of roads. External costs are not included as an explicit category in their calculations. On the other hand, in Sweden's 1988 Transport Policy Act, which states the principles by which road users ought to be taxed, road use costs refer to the social marginal costs of road use and include external costs, such as accident costs and environmental damage.
The tax calculation should be made on the basis of many considerations, of which an economic theory is just one and often not the most important one. The main considerations taken into account in determination of road user taxes are identified and reviewed. In studying taxation, economists traditionally focus on the question of how the revenue can be raised in the most effective way. Road users are required to cover their "costs", although the definition of costs varies, when it comes to social marginal costs, public expenditures on roads, etc.
In some countries such as Finland and Germany the costs of road use and to what extent they are recovered have been examined. These studies help give a picture of the efficiency of the present road user tax structure and the degree of cost recovery without going for detailed calculations.
The stakeholders have keen interest in the road user tax. Certain public enterprises and agencies also have an interest in road user tax. The Bangladesh Railway is an ever losing concern and is required to cover at least their financial costs. They are likely to be concerned about the effect of road user taxes.
At present revenues accrue to the public treasury and not to the road agency and, therefore, do not influence the provision of roads. And road investments are often made in political consideration, but not based on any cost-benefit analysis and the amount of funds allocated for roads in the national budget. The Roads and Highways Department, if vested with the overall task of fund generation and maintenance of the road network, will have an interest in the level of taxes, since this affects road use and the choice of vehicle weights and dimensions.
Apart from the RHD, there are numerous other organisations, which have an interest in road user taxes. These include primarily road user associations like transport owners' association, trade unions, representatives of industry, motor vehicle manufacturers or importers, transport companies etc.
Countries with railways have used road user taxes to trigger a road-railway competition, primarily through avoiding the provision of unfair tax advantages to one or the other. For example, the UK has been concerned with creating the conditions necessary for a fair competition among different categories of lorries and between lorries and British Rail's freight business, which is expected to operate commercially.
In many countries buses have been exempt from paying road user tax. This tax ensures promotion of public transport against private cars in order to reduce congestions and environmental damage. There is no link between road user taxes and the efficiency of the road agency. Construction of roads by agencies does not attest to a price for roads as indicated by the road user tax. Instead, the provision of roads is based on a cost-benefit analysis and on the amount of funds allocated from the government treasury. Secondly, as roads are maintained by a single agency, there is no competitive process to increase the efficiency. Sweden and Finland have a number of "commercialisation" measures. Also, in France, concessionary companies compete for contracts to build specific tolled roads, although this does not apply to the road network, in general.
Finally, the relationship between fuel taxation and the broad-based indirect tax system may be examined alongside the level of customs duty and VAT as well as determination of road user tax rates, in general. Road user taxes are an important instrument in achieving the goals of policies on energy, environment and broader transportation. There have also been concerns about the impact of road user taxes on trade and industry and on domestic motor vehicle industry. These considerations mean that the government should take a broader view while determining road user taxes. Bangladesh is a riverine country and water transportation is cheaper than the road or railway. Bangladesh can encourage river transports by balancing user taxes on all modes of transport.
The writer is a legal economist pursuing PhD in Open University, Malaysia.
 shah@banglachemical.com