INDIAN Government’s plan of introducing Rs. 80,000 additional tax on diesel cars

INDIAN  Government’s plan of introducing Rs. 80,000 additional tax on diesel cars

In a move that may provide a breather to automobile companies, Kirit Parikh, who headed the committee on fuel deregulation and recommended an additional Rs. 80,000 excise duty on diesel cars, proposed that a better way to deal with the issue of the subsidy is to re-introduce annual road taxes on diesel-run passenger vehicles.

“I have changed my mind on that after a lot of arguments over the report,” Parikh said on the sidelines of a summit in New Delhi. “There are some questions on that. PPAC (Petroleum Planning and Analysis Cell) has carried out some surveys. They are again doing a survey. Once that is complete, we would know the exact figures. There may be some differences in definitions—15% is not just for passenger vehicles, but for all four-wheelers but not trucks.”

Parikh said once the survey is done, the consumption of diesel by “non-commercial private vehicles” should be in the range of 3-4% of total diesel consumption in India.

The government subsidizes diesel for use by farmers in diesel pump sets. That subsidy has led to the rising demand for cars driven by the fuel as it is around Rs. 25 cheaper than petrol.

According to a survey by the Society of Indian Automobile Manufacturers (Siam), passenger cars account for 0.6% of diesel consumption. That conflicts with the 15% figure cited in Parikh committee’s 2008 report.

The recommendations of the Parikh committee provided the basis for the government’s decision in June 2010 on linking retail petrol prices to market rates. The committee had recommended the same for diesel.

Keeping retail prices of diesel below cost was the largest contributor to the retail subsidy on fossil fuels, the Parikh committee report said. It accounted for 40% of the Rs. 2.99 trillion subsidy for the five years ended fiscal 2009.

The government-appointed panel also wanted additional excise duty on diesel cars, besides deregulation of petrol and diesel fuel prices. This move was expected to push up the prices of diesel cars. Currently, one of the main reasons for the popularity of diesel cars is that the fuel is cheaper, which translates into low running costs.

“I don’t know why he’s wasting time on finding how much diesel cars consume,” said R.C. Bhargava, chairman of Maruti Suzuki India Ltd, the country’s largest car maker. “The question which needs to be answered is when petrol cars are not subsidized, should diesel cars be subsidized? Why? That’s the question which is pertinent. I see no reason why diesel car users be preferred over petrol cars.”

To be sure, in the last six months, demand for Maruti Suzuki’s diesel models has gone up by 60-80% thanks to the fuel price difference. According to Siam, the share of diesel cars has grown from 17% in 2010 to 25% in 2011.

Parikh said that the logic of levying extra duty on diesel cars remains intact, but there have been arguments and concerns over the initial cost of the vehicles rising.

“Many of the manufacturers fear that...if the initial cost of the car is high, then people buy lesser cars,” he said.

Parikh said the government could reintroduce annual road tax and have different levies for diesel vehicles.

“What I am suggesting is what actually reduces the initial cost,” he said. India shifted several years ago to a one-time payment of road tax from the previous annual system.

Heavy industries minister Praful Patel wrote to finance minister Pranab Mukherjee about two weeks ago that the 15% estimate of diesel consumption by cars was incorrect and that the figure was significantly lower. Mint has reviewed the letter.

Patel also referred to an inter-ministerial group meeting held after the release of the report that was attended by Parikh.

“During the meeting, it was accepted that certain assumptions made for arriving at estimations for diesel cars merited a relook,” Patel wrote in the letter. “Further, it also appears that all the categories of vehicles (utility vehicles, vans, jeeps, etc.) have been broadly taken as passenger cars for working out these estimates which, as already indicated, is not correct. It is therefore imperative that correct estimations based on rational assumptions need to be made before these are used for any policy formulation.”

The present taxation structure already has two different excise duty slabs, with passenger cars (except small ones) at the highest taxation level of 22% with an additional excise levy of Rs. 15,000.

On diesel deregulation, Parikh said the government is concerned that the impact may have an inflationary effect.

“I had suggested that diesel pricing should be competitive and free, but the government has not addressed it. Their main concern is spillover to inflation,” he said. “I have argued that under-recovery of petroleum companies will anyway raise inflation about three months down the line. One has to recognize this. The pricing should be freed progressively.”

Source - livemint.com