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      Car makers send written appeal to Finance Ministry to oppose proposed excise duty on diesel cars

      CarTrade Editorial Team

      CarTrade Editorial Team

      Car manufacturers operating in India have written a letter to the Finance Ministry against the increase in excise duties on diesel cars. According to the letter, the automotive giants have stated that this hike in taxes will bring down sales even further and will lead to 'serious distortions' in the sector.

      Industry body Society of Automobile Manufacturers (SIAM) wrote this letter to R.S. Gujral, the Finance Secretary, saying that the sales are already going through a slump and the implementation of the proposed tax will make the situation even worse.

      In the letter, Director General, SIAM, Vishnu Mathur, commented, "Increase in excise duty on diesel cars would not serve any useful purpose in terms of reducing the subsidy bill of government. On the other hand, it would create serious distortions in the industry taxation structure and provide a disincentive to the highly fuel-efficient diesel technologies developed by the industry with huge investments."

      This letter is SIAM's response to the meeting that Gujral had with leading auto manufacturers of the country some time ago on this matter. The Petroleum Ministry has been quite vocal about putting into effect an additional tax on diesel cars in order to curb the consumption of the subsidised fuel by passenger cars. Petroleum Minister Jaipal Reddy proposed additional taxes ranging from Rs. 1.7 to 2.55 lacs on diesel-powered cars. Though the Finance Ministry has said that it is still pondering over the issue, reports say that it is also not in favour of this proposed tax as it is regressive.

      SIAM has stated that passenger vehicles use up just 6.8 per cent of the total diesel sold in the country, wherein just 1.56 per cent is consumed by personal vehicles as the major portion is used up taxis. It said that the consumption by personal passenger vehicles is marginal and that other industries used up much more diesel than cars. The letter said, "It is also pertinent to point out that much larger quantum of diesel is consumed by diesel-generating sets being used by offices, malls, residential complexes, shops, hotels, restaurants, mobile towers etc. for back-up power generation."

      With 27 per cent excise duty, large cars are already heavily taxed in the country and SIAM says that the implementation of the proposed tax will just end up making them costlier, which will put them out of the reach of buyers.

      SIAM recommended that the government should partially deregulate diesel even if it is not able to eliminate subsidy altogether. Mathur said, "Price differential between diesel and petrol fuel which was about 25-30 per cent till June 2010 increased significantly to about 75 per cent in May this year. This type of price differential is not sustainable for the economy as a whole. On the other hand, worldwide the differential between price of diesel and petrol has been around 10 per cent."

      Mathur suggested that the price of diesel can be hiked gradually, which will also provide the government with the requisite provision to bring down petrol prices. He said, "In the first phase, price of diesel can be raised by Rs. 2 per litre and simultaneously the price of petrol can be reduced by Rs. 6... The above exercise can be repeated periodically after a couple of months till the price differential comes to a more sustainable level." According to SIAM that a Re. 1 hike in diesel price will give the exchequer Rs. 6000 crores.