GST & Smart Parking

GST and Parking for Smart Cities of Tomorrow

When GST was launched, we were in the midst of our most important parking project that could help address parking chaos in our cities. GST is definitely the most significant reform measure being implemented in the country at the moment, promising a single common market. However, our spirits dropped when we learnt of the increase in tax rates to 18% applicable to parking management services. We knew customers would push back in the short term, and in the long term it would put the brakes on the formalisation of the sector.

In the last few years, tax rates across the board for all manner of services have consistently headed up from 12% to 18% now.  In a sector where pricing (or lack thereof) is itself a primary issue, tax rates may seem a trivial point of debate. But that’s not entirely true.

Lack of parking space is a problem that all of us living in cities face, regardless of whether we own a vehicle. When we set up ValetEZ, our goal was to find ways to leverage technology to address this challenge in Indian cities. A high tax rate, however, acts as a disincentive to the informal sector to formalise itself, and is a negative for organised players and start-ups seeking to bring desperately needed innovation.

Parking is not an isolated sector but is integral to traffic congestion management and urban development. No country in recent memory has developed without urbanisation. As India urbanises rapidly in the coming decade, the shrinking availability of space will mean that all forms of mobility will require new ideas and new participants. To put things in perspective, vehicle registrations in Bangalore have gone up by 50% in just 4 years (see chart). With limited new space built up for parking these vehicles, the chaos on the streets is obvious.

Period No. of registered vehicles (in million)
April 2013 4.59
April 2014 5.05
April 2015 5.55
April 2016 6.1
April 2017 6.8

Source: Government of Karnataka Transport Department

With projected sales of over 9 million vehicles a month (Automotive Vision Plan 2026), parking management requires urgent attention. Even with the flurry of metro development projects and the emergence of cab hailing, parking and urban mobility requires an infusion of innovation and leveraging the power of digital technology. The existing market, which is largely unorganised and highly fragmented, is unlikely to bring in the necessary vigour.

Parking is largely an issue addressed by local governments. But the simplest incentive that the Central Government can provide today to encourage formalisation and greater dynamism is a reasonable tax rate. With a GST rate of 18% for a utility service like parking, there is unlikely to be an incentive for existing informal players to formalise and scale up. At the same time, it is not reasonable for consumers who are actually willing to pay for better parking infrastructure.

India will see massive urbanisation in the coming decades and the government is well placed to provide the right environment to support innovations from the private sector. A more reasonable tax rate would support a more conducive environment and provide greater momentum to existing efforts and help realise the government’s vision for building the smart cities of tomorrow.

Prashant Chandrasekaran, is the co-founder of ValetEZ, a company aimed at organising India’s parking, and an alumni of Saïd Business School – University of Oxford.