One-rupee car registration

As part of the 2021-22 budget, the Government of Khyber-Pakhtunkhwa made a rather unusual announcement that starting July 1, 2021, the government would charge a notional fee of Re1 only, for registering a car.

While this would definitely reduce the registration fee burden on citizens, it was not meant to be a tax holiday measure, but instead a deep-rooted reform targeted at enhancing provincial revenues in the medium to long run.

Let me give you a bit of context. K-P’s population has been growing at 2.9%. The average monthly income of urban households in K-P also rose by nearly 23% between 2013-14 and 2018-19. However, during the same period, the car registration in K-P went down from 4,094 a year to merely 892. In fact, vehicle registration in K-P has been declining at a staggering rate of over 10% per annum, notwithstanding the significant increase in population and household income.

At first, this seems perplexing, but not when one starts to take into account the car registration figures for neighbouring Islamabad, which has 7,665 registered vehicles per 1,000 households, compared to merely 5 vehicles per 1,000 households for K-P.

K-P officials have long believed that Islamabad has been cannibalising on their vehicle registrations. But this impression was based on anecdotal evidence. More recently however, the UKAID-funded Sustainable Energy and Economic Development (SEED) programme, with which I have been associated, helped the government in cracking this problem. The programme ran a survey on 1,500+ randomly selected vehicle-owning residents of K-P and found out that only 27 out of every 100 citizens had registered their vehicles in the province. About 55 citizens had gotten their cars registered in Islamabad, whereas 18 had registered their vehicles elsewhere. This meant significant revenue loss for the resource-starved K-P, which has been struggling to increase its provincial revenues.

Why would citizens of K-P register their cars in Islamabad? The survey identified high resale value of Islamabad-registered vehicles, ease of interprovincial mobility and simple token tax payment mechanism to be the main drivers behind out-of-province registration.

If this were to change, K-P would need a state-of-the-art credible licence plate system, with easier to use processes for registration and token tax payment. But, most importantly it would need a ‘nudge’ to break the decades-old habit of K-P residents.

The K-P government therefore embarked on a complete overhaul of the existing vehicle registration system. In February 2021, the centralisation and digitisation of all records was completed. Work is now underway to introduce an e-payment system that would allow users to view and pay their dues online and by 2022, the K-P government will be introducing universal number plates in the province. But to bring a behavioural shift, the government has announced the new motor registration fee at a notional rate of Re1 for small cars up to 2500cc. This used to be 1 to 2% of the vehicle value, as is still the case in Islamabad. Re-registration of vehicles has been made free, while for larger vehicles, the registration fee has been reduced to 1% of the vehicle value, which previously was 4%, like in Islamabad.

The Re1 car registration reform presents an example of an unusually bold reform, targeted at modifying citizens’ behaviour and is built over a number of concrete system improvements, addressing issues identified by a thorough diagnostic exercise. While the results of these reforms remain to be seen, it surely provides a template for other departments and provinces to follow and most importantly serves as a reminder that hard reforms alone are less likely to succeed, without softer interventions targeting underlying citizen behaviour.

Published in The Express Tribune, June 29^th, 2021.

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