Diesel cars may be taxed extra Rs2.55 lakh

Diesel cars may get costlier by up to Rs2.55 lakh, as the petroleum ministry under Jaipal Reddy has revived the proposal to impose an extra tax on such cars which run on the heavily subsidised fuel.

In a letter to finance minister Pranab Mukherjee, sent on 7 June but reported only today, Reddy has proposed an extra levy of Rs1,70,000 on small diesel cars and Rs2,55,000 on medium and large diesel vehicles like sedans and utility vehicles SUVs to check ''dieselisation of the economy'', triggered by the widening gap between petrol and diesel prices.

With the increasing gap between diesel and petrol prices, the rush for diesel cars has become virtually a flood, with petrol variants left far behind. Diesel cars are known to be more fuel efficient than petrol and offer 30 per cent more mileage. But perhaps more importantly, diesel is now cheaper than petrol by around Rs30 a litre, or 74 per cent.

While petrol prices have been linked to market rates and are frequently raised, the prices of diesel have been frozen for almost a year under political compulsions. Sales of diesel cars have zoomed to over 55 per cent of the total 1.63 lakh units sold in May this year, sharply up from 38 per cent last year.

According to The Economic Times, oil ministry officials said the finance ministry was favourable to the proposal. "The money thus raised could be used to meet part of the under-recoveries (revenue losses of state oil firms due to subsidised fuel prices)," the official said.

Reddy in his letter has said the government was earning Rs12.72 less in excise duty on diesel compared to petrol, which attracts Rs14.78 a litre in excise duty. The under-recovery on sale of a litre of diesel is Rs12.53. This amounts to a total loss of Rs25.25 a litre to the government when compared to petrol, Reddy has noted.