Uncertainty looms large as ministries disagree over proposed tax on diesel cars
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India's Department of Heavy Industries (DHI) and Ministry of Petroleum are publicly bickering over a steep hike in excise duty levied on diesel-powered cars, a proposal put forward by the latter.
A senior official working for the DHI told a prominent daily newspaper that Union Oil Minister Jaipal Reddy should not have spoken about the taxation policies pertaining to the auto industry since it does not fall under this ambit. This statement came just two days after Reddy proposed a hike of up to Rs. 2.5 lacs on diesel vehicles to the Union Finance Minister Pranab Mukherjee.
The senior DHI official stated, "What right does the oil ministry have to recommend an excise duty increase?" He continued, saying "They should only be bothered with the prices of petrol and diesel. Who will invest in India if such a regressive tax is imposed?"
In his letter to Mukherjee, Reddy has asked the Finance Minister to enforce an additional tax of Rs. 1.7 lacs on small cars fuelled by diesel, while mid-sized diesel sedans should entail a tax of Rs. 2.5 lacs. Currently, the excise duties on cars in India are charged at Rs. 15000 of fixed charge and varying taxes of 12 to 27 per cent, depending on the length of the model as well as the capacity of the engine.
Even the Minister of Heavy Industries, Praful Patel, has appealed to the Finance Minister, speaking against Reddy's proposal. Previously, Patel supported the auto industry when this proposal was being discussed by the government before the 2012 Union Budget. In agreement with the whole auto industry, Patel has recommended that the government should decontrol diesel prices instead of levying extra taxes only on the cars powered by the fuel.
President and Managing Director (M), Ford India, Michael Boneham has stated, "Taxing diesel vehicles more is a very short term solution, if at all. It would be much better if diesel prices are raised and linked to the international prices."
Since the price of petrol was hiked in India by a massive Rs. 6.54 (plus taxes), buyers across the country have shunned petrol cars and are moving towards diesel models. From 38 per cent in 2010-11, the share of diesel cars in the consolidated car sales in India has increased to 48 per cent in the current year. This has, consequently, increased the rate of consumption of the subsidised fuel as well. The government urgently needs to take some measures as the subsidy on the fuel is expected to reach Rs. 1 lac crores in the ongoing fiscal, as compared to Rs. 81,192 crores in the last financial year.
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