Diesel cars are unlikely to attract any additional taxes before the Budget next year. Government officials believe such a decision will be independent of the proposed diesel price hike of Rs 4-5 per litre.
“The file with the detailed proposal from the Petroleum Ministry, along with observations of the Finance Ministry, auto industry and others, are with the Finance Minister, P. Chidambaram. Now he has to take a call on the sensitive issue,” a senior Government official told Business Line .
Interestingly, the nodal Ministry for the auto industry — the Ministry for Heavy Industries — seems to be falling in line with the Petroleum Ministry.
A senior official in the Ministry of Heavy Industries said: “How long can we support the auto industry’s demands for not raising the tax when the fiscal situation is becoming really difficult to handle? We believe a decision can be taken in the next Budget.”
Amendment
Finance Ministry officials said there is no tariff cushion available. So, a change in duty will require an amendment in the Finance Bill.
Alternatively, the Finance Ministry can issue an ordinance or notification using the emergency power to raise the tax before the Budget, or even before the Winter Session. Auto sales numbers also seem to further the case for a higher duty on diesel cars. Industry sources reveal that diesel cars and Sports Utility Vehicles (SUVs) now account for over half the cars sold. With more companies coming out with diesel models and the increasing price differential vis-à-vis petrol, diesel car sales are set to increase even more.
Subsidy offset
In June, the Petroleum Ministry sought imposition of additional excise duty of Rs 1.7 lakh on small diesel cars and Rs 2.55 lakh on SUVs. The assumptions for additional duty rest on the average life-span of 10 years and mileage of 18 km for small cars and 12 km for SUVs. The Ministry’s argument is that the amount collected by way of additional duty could partially offset the subsidy payout for petroleum products.
In a discussion on this issue between the Finance Ministry and the auto industry, the latter, as expected, opposed the Petroleum Ministry’s recommendations.
With Pranab Mukherjee’s elevation to Rashtrapati Bhavan, a report on these deliberations was sent to the Prime Minister’s Office. “Since a full-time Finance Minister has been appointed, the file has come back from the PMO without any comment,” the official said.