The government is planning to compensate the subsidy on diesel by taxing cars fuelled by it. Petroleum Minister S Jaipal Reddy has recommended a steep Rs 2,55,000 additional tax on large and medium diesel cars and Rs 1,70,000 on small diesel cars.
In a letter to Finance Minister Pranab Mukherjee, he has said the government was earning Rs 12.72 less in excise duty on diesel compared to petrol, which attracts Rs 14.78 a litre in excise duty. Besides, Rs 12.53 is the under-recovery on sale of a litre of diesel. Altogether, Rs 25.25 a litre is the total loss to the government when compared to petrol, Reddy has noted.
He has said the additional revenue by such a levy could partially offset the subsidy burden on the government and prevent dieselisation. Leaders of the Indian automobile industry have opposed a proposal by the government to levy higher taxes on diesel vehicles. The finance ministry has been considering imposing additional levies on these vehicles, given the use of the subsidised fuel by car owners.
According to Vishnu Mathur, director general, Society of Indian Automobile Manufacturers (Siam), manufacturers were unanimous that such a levy would further affect the industry, already struggling with slow sales.
Prior to the Union budget presentation, Reddy had proposed Rs 80,000 duty on diesel cars in line with the recommendations of the Kirit Parikh committee. "The new proposal is based on fresh calculations, assuming a life span of 10 years and a mileage of 12 km for big diesel cars and 18 km for small ones," said an official who did not want to be named.
With petrol prices going up six times over the past year, the price differential between the two fuels have increased to a little over Rs 30 per litre. This has made an increasing numbers of consumers opt for diesel cars, despite an initial premium of Rs 80,000 payable on these. Sales of diesel vehicles increased by 35 per cent to account for 47 per cent of overall volumes in the passenger vehicle industry during the last financial year. Petrol car sales declined 15 per cent during the period. “Sales are already under pressure due to high interest rates and fuel prices. Consumer sentiment is low. If additional taxes are levied, whatever numbers are coming in will be affected, too,” said an industry official.
The Central Board of Excise and Customs has already asked the industry to provide data on inventory and sales trend over the past few months to better assess the market situation. S K Goel, chairman, CBEC, had earlier said the finance ministry was examining a proposal to raise the excise duty on diesel cars. "The proposal is there and that is being examined by the finance minister. Consultations are being held and an appropriate decision will be taken by the government in due course," Goel had said.