Government once again considers tax hike on diesel cars

05 June 2012

Unwilling to cut the pernicious diesel subsidy, the government is once again looking at raising the excise duty on diesel-run private cars.

"The proposal is there and that is being examined by the finance minister [Pranab Mukherjee]. Consultations are being held and an appropriate decision will be taken by the government in due course," S K Goel, chairman of the Central Board of Excise and Customs (CBEC), told reporters in New Delhi.

The gap between petrol prices (now linked to crude prices) and the heavily subsidised diesel is now around Rs30, depending on the state. As a result, the rush for diesel cars is unabated, both in the small and large car markets. There is a waiting period of two to three months before delivery for most diesel models, while the petrol variants are available off the shelf.

According to petroleum ministry estimates, 15 per cent of diesel consumption is accounted for by personal cars, including utility vehicles, which only the affluent can afford.  This clearly violates the rationale behind keeping diesel prices low – the subsidy was envisaged for goods and public transport, not for private cars.

The move to put an extra tax on diesel cars is, however, not an attempt to redress a natural injustice, but a method for the government to get some extra money into its perpetually low coffers, most observers feel.

The central duty imposed on petrol and diesel cars is currently about the same. This obviously makes diesel cars more attractive; those who would normally buy a smaller car can afford to indulge in a gas-guzzling SUV thanks to the artificial difference between the prices of petrol and diesel.