After allowing oil companies to raise diesel prices by 50 paise per month, the government may impose a higher excise duty or a surcharge on diesel Sports Utility Vehicles (SUVs) in the Budget 2013-14 as it explores ways to cut subsidies on the fuel.
The SUV market is dominated by Mahindra & Mahindra. The other major players include Toyota Kirloskar, Maruti Suzuki, Tata Motors and General Motors.
The ministry may not go for across the board hike in the duty on diesel cars.
A finance ministry official told Business Standard the idea of a higher excise duty on diesel cars was being explored for some time but could not be implemented due to opposition from automobile companies.
In pre-budget consultations with Finance Minister P Chidambaram, Mahindra and Mahindra CMD Anand Mahindra had said, "Auto industry should not be treated as a golden goose which can be taxed."
As such, the government may now consider raising the duty only on diesel SUVs.
“The peak duty rate on cars is already high. Increasing it further on all diesel cars may not be possible, but perhaps what can be looked at is a higher tax on SUVs. Most of the SUVs today run on diesel and are fuel guzzlers,” the official said, adding those who can afford an SUV should not mind paying higher tax.
The finance ministry can make SUVs dearer in various ways. It can create a new rate slab for such cars, add a fixed duty over and above the ad valorem rates, or levy a surcharge.
The Kirit Parikh committee on Pricing of Petroleum Products had proposed an additional duty of Rs 80,000 on diesel SUVs. The panel had also proposed up to Rs 50,000 per year annual road tax on diesel cars. The committee had submitted report in 2010.
The government levies excise duty of 12% on small cars (on petrol cars with engine capacity under 1,200 cc and diesel cars with engine capacity under 1,500 cc). It imposes 24% on cars with length exceeding four metres but engine capacity of less than 1,200 cc in petrol and 1,500 cc in the diesel version.
Vehicles with length exceeding four metres and engine capacity of over 1,200 cc and 1,500 cc, respectively, attract an ad valorem duty of 27% and a fixed duty of Rs 15,000. Education cess (2%), secondary and higher education cess (1%) and national calamity contingent duty (1%) are also levied.
About 16% of subsidised diesel sold in India is consumed by cars and SUVs. The government wants to discourage use of diesel in passenger cars as it gives unintended benefit to owners of diesel cars leading to a surge in the sale of such cars. The differential between diesel and petrol prices is more than Rs 20 per litre in Delhi.
The issue of subsidised diesel being used by SUVs was raised by former Environment Minister Jairam Ramesh way back in 2010. He had asked the users of these fuel-guzzling cars to pay full market price for diesel, which is subsidised for the benefit of farmers.
"We introduce the (diesel) subsidy for a certain economic purposes but have ended up with a wholly different purpose," he had said, favouring incentives to the firms aiming at sustainable development.
Utility vehicles currently account for 20.6% of the passenger vehicle market in India. Sales of utility vehicles (UV) grew by 59.10% to 402,921 units between April and December this year. Sales in the overall passenger vehicle (passenger cars, utility vehicles and vans) market increased by 8.37% to 1,959,444 units.
Mahindra & Mahindra dominates the UV market in the country with the homegrown auto major Scorpio, Bolero, Quanto, XUV 500 and Xylo having a market share of 47.6%.
Other vehicles include Fortuner and Innova by Toyota Kirloskar, MUV Ertiga by Maruti Suzuki, Safari Storme, Sumo, Aria, Venture by Tata Motors and Captiva by General Motors.