Diesel tax may hit diesel car sales: analysts

Thanks to the rising popularity of diesel cars in India, automakers are doing everything they can to cash in on the boom for diesel cars. Diesel-powered cars have pushed Indian auto sales to new peaks for two straight months with petrol becoming as much as 60 per cent more expensive in the third largest Asian auto market.

However, the trend has not gone unnoticed by the government and analysts say taxes on diesel may be very much on the cards in the budget to be announced on 16 March.

They add if the taxes are high enough demand would be severely impacted.

What has fuelled speculation of a diesel tax is a steady stream of comments from Indian leaders alluding to the possibility.

Prime minister Manmohan Singh, late last year said India needed to phase out fuel subsidies and finance minister Pranab Mukherjee told parliament in August the government was mulling subsidy reduction on diesel.

Some analysts say the probability of the government disclosing duties on diesel vehicles when the budget is announced was high. They add that while the demand would be sustainable at extra taxes of 6 per cent by way of taxes, going beyond that would drive away consumers and a 16 per cent tax would ''entirely wipe out'' diesel's advantage.