Welcome to my personal blog. I mostly write on entrepreneurship, economics, libertarianism, movies, and my travels.

Search This Blog

Jun 8, 2014

Luxury or necessity?

Google’s driverless cars are making headlines once again. These self-driving machines have logged more than 10,000 miles already without a single ticket and are being touted as the future of transport, at least for the developed world. Similarly, automatic drones which can be controlled by smart phones are revolutionizing industries ranging from online retails to pizza delivery through more effective and efficient transportation. 

On the other side of the world, however, we Nepalis are being forced to look at a simple four wheelers with wistful eyes. Thanks to the exorbitant rates of import duties and taxes the Government of Nepal levies on the import of automobiles categorizing them as luxury items, vehicles are out of the reach of the majority of Nepalis.
Nepal government levies 241 percent tax and duties on vehicle import. This is the highest imposition of tax on the automobiles in the world. As a result, when the world’s cheapest car Nano entered Nepal it was already seven times more expensive than it was in India, effectively out of reach for majority of Nepalis. As of April 2014, the number of vehicles registered in Nepal is only about 1.7 million which means our penetration of vehicle rate is just 5.67 percent of the population which is one of the lowest in the world. 

It is interesting to note that while the government thinks vehicles are luxury goods and not every Nepali should have access to them, the government officials and politicians ride on ultra expensive vehicles with taxpayers’ money. Hence, we have a scenario where only the rich, the government officials and the politicians can afford four wheelers. For the rest, the choice is between purchasing a two-wheeler with safety hazards and using the public transport which is not just unreliable but risky and costly if you consider the opportunity costs.

The usual justification given for the exorbitant taxes and duties is that it will minimize the use of private vehicles and thereby save environment, prevent congestion and save our foreign exchange reserves as the country has not been able to produce any vehicles of its own. The justification is true only as far as the theory goes. 

In practice, the question would be: Has the NRs. 11 billion plus revenue generated from the exorbitant import taxes, duties and road taxes and license fees translated into better roads, better public transport and better traffic management? Not exactly! In fact, it works the other way round. Because of the poor road conditions and unreliable public transport system more people are opting for private vehicles. Nepal could very well be the only country without a mass transit system in the world. The public transport run by cartels is as unreliable and as costly as things can become when impunity from both crime and competition is granted and ensured by the government.

Road construction is mired with corruption and government negligence in action. Roads are black-topped during the rainy season which last only for a few weeks before they are patched again. 

Because of the high taxes and the resulting increase in prices, primary medium of transport for many Nepalis, especially for those living in the cities, is two wheelers. Two wheelers are inherently less safe compared to other vehicles, resulting in more fatalities during accidents. The risk has been increased tremendously by the condition of roads and lack of traffic rule enforcement. As a result, we lose thousands of precious lives every year because people are compelled to ride unsafe vehicles. Roads are relatively safer for the rich but not for the poor because our government thinks safer and more comfortable vehicles are a luxury, not a necessity.
One of the concerns shared by the policymakers and general public with regards to lowering of import taxes is that it will encourage everyone to own vehicles and lead to high congestion in the roads. The fallacy stems from the trend of thinking of only cities and urban centers while designing national policies. 

The road network of the country does not even receive traffic enough to make them sustainable. Although road networks have connected all the 75 districts of the country, the actual utilization of the tracks is very low. The highest vehicle movement per day in Nepal is along Nepal-India borders which get 2500-3000 vehicles. On the other hand, most of our roads get only 300-1000 vehicles per day making it hard to sustain the regular maintenance and upgrade of these roads because of the low revenue generated from less traffic.

It is high time our policymakers rethought this policy of treating vehicles as a luxury item rather than as essential goods required for economic growth and development. Only when we make automobiles affordable in this country will the infrastructure development and its intended benefits materialize. But above all these concerns, the primary question we need to ask is: When the world is dreaming of affordable space travel why should we be denied access to something as basic as a four-wheeler?

- Surath Giri