India needs huge investments in infrastructure and thus, any model of financing that brings investments into this sector is generally welcomed by the policymakers.One such model is the ‘User charges’ model whereby a private developer invests the money in a project of public nature and the users later on pay some fees on ‘Pay per use basis’ for such projects.Tolls on roads and user fees in new privately operated airports are examples of such a user charge model.Undoubtedly , this model has led to a lot of development in many sectors like roads and airports.India has seen a drastic increase in the quality of infrastructure projects made under such an investment scheme.
The success of User charges model have enticed many policy makers to propose that user charges can also perform re-distributive functions of a tax.Tax performs important re-distributive functions in a developing country like India.A progressive taxation system ensures that people are taxed according to their income and then that tax is used to provide ‘social welfare’ to all.Essentially, it means that the beneficiary of tax may not always be payee of the tax.But tax ensures that a country is able to provide ‘equality of opportunity’ to people who may not come from affluent social background.This also ensures that there is peace and tranquility in the nation as people feel good to have a government that takes care of them.
The problem with India is its low Tax to GDP ratio which is around 12 percent compared to developed country like US where it is around 24 percent.It is but natural that the government has to look for other non tax revenues to fulfill the social and economic aspirations of the populace.’User charges’ being one of the most important and recurring non-tax revenues make them a perfect pick for policy makers to use them as a tax.A user charge becomes a tax when it has already recouped the basic cost plus profit of the private developer but is being still levied on the users in order to fund other projects which are not financially viable.So, it is like building a road in a remote area of India by using the revenues generated from premium national highways.
But is it correct to treat ‘User charges’ model as a system of taxation? User charges differ from taxes in two important ways. First, user charges are levied for a specific purpose and those who use it only pay for it i.e. the beneficiary and the payee are the same person.Second and most importantly, the people who cannot afford to pay for it have to use an alternative of a lesser quality.A corollary of this is that those who cannot pay Rs 250 for toll from Amritsar to Delhi will have to use alternate lower quality and time consuming roads to reach Delhi.The important question is that will it be fair to exclude these people of the same region where the project has been commissioned by levying the user charges in perpetuity.The answer is a certain no.
User charges beyond concession period should get reduced drastically by the very logic that it was always funding a project of public nature and aim was not to extract profit out of it.Even if government plans to have user charges beyond concession period , it must ensure that such money generated should only fund the projects which benefits the people of the region who are paying for that premium highway.For example, extraordinary revenue generated from national highway one should be used to strengthen the roads in the same region otherwise it may be unfair and unjust to the people who are paying for it.
The protests in case of toll plazas installed on DND flyover and Gurgaon expressway are clear indication that people don’t like to pay user charges in perpetuity.Any attempt to force them to pay irrational user charges may lead to suspicion about the public private partnership projects, leading to downfall in the image of such projects.Already, the public perception in India is that private players executing public projects are extorting money from the end consumers.The wide criticism of private power utilities in Delhi is still very fresh in our memories.The Public private partnership must not get into ‘Image problem’ as that is last thing India can afford when it so desperately requires it.Thus, we hope that policy makers will use User charges model wisely and not fall into temptation of using it as a tax.