New Delhi, Sept. 26 -- With the recent rationalization of goods and services tax (GST) rates, taxes on automobiles have undergone a structural reform. Whereas internal combustion engine (ICE) vehicles were previously subject to 28% GST (with an added cess that varied for some categories) while electric vehicles (EVs) paid a special rate of 5%, the tax for the former has been restructured to link rates to two parameters: engine displacement and vehicle length.

This reform is expected to boost the auto industry. But policymakers could build on these changes by also linking GST vehicle emissions, thus leveraging India's indirect tax regime not only to meet economic objectives, but also to advance India's ambitious climate goals.

India's tr...