Committee proposes annual road tax on diesel SUVs

November 27, 2012: The Kirit Parikh-headed Integrated Research and. Action for Development (IRADe) Committee has made a proposal to the finance ministry that an annual road tax be levied on diesel-powered SUVs that could be up to Rs 50,000 more than petrol-powered ones.

Parikh made these comments on the sidelines of a SIAM conference on ‘Diesel for Future: Economy & Environment’ held in New Delhi on November 26. If this proposal goes through, it would hit sales of many vehicles ranging from the Maruti Ertiga, launched in April 2012, to the more recent Renault Duster as well as the Mahindra Quanto.

Based on sales in the first half of the current fiscal, 300,000 diesel-engined UVs and SUVs would come under its purview, excluding luxury SUVs. Parikh has reportedly said that instead of looking at a one-time diesel tax on new purchases, the alternative could be to abolish the one-time road tax and levy an annual one with a differential factor for petrol and diesel.

In recent months, talk in government circles of a one-time diesel tax had got OEMs concerned, given many wanted clarity on the issue before making key investments in diesel engine manufacturing. However, the industry was relieved when the government only announced an increase in excise duties across the board in the 2012 Budget.

The government is clearly looking for ways to keep a ballooning fuel subsidy in check. The proposal mooted by Parikh will be deliberated upon as the government prepares for the 2013 Budget.

The auto sector, facing a slowdown, has said that an additional tax on cars does not make sense. In fact, the SIAM conference saw industry vote for diesel technology for the future. The delegates addressed the need to recognise diesel as a viable solution for energy security and a lower carbon footprint. Strategies were also suggested in pricing and taxation to enable the government to integrate diesel as an important energy driver for transportation sector.

The ministerial session was addressed by the chief guest Praful Patel, minister for Heavy Industries & Public Enterprises and guest of honour, Jitin Prasada, minister of state for Human Resource Development. The conference was also addressed by Vikram S Kirloskar, VP, SIAM and vice-chairman, Toyota Kirloskar Motor; Anant J Talaulicar, chairman, SIAM Diesel Group and CMD, Cummins India; Lowell Paddock, president and MD, General Motors India; Ashok Dhar, president – Industrial Marketing, Reliance Industries; Dr Kirit Parikh, chairman, IRADe; L N Gupta, joint secretary, Ministry of Petroleum & Natural Gas; Sanjay Bandopadhyaya, joint secretary, Ministry of Road Transport & Highways; and Nitin Gokarn, CEO, NATRIP.

Speaking at the conference, Praful Patel said, "The perception that diesel is dirty is no more valid. This needs to be changed as contemporary diesel vehicles have higher fuel efficiency; it is as clean as any petroleum fuel." Jitin Prasada said, "Diesel consumption and technologies are here to stay as diesel has emerged as a better fuel, as they are efficient in terms of consumption." Vikram S Kirloskar said, “Diesel has an important role a fuel of the future for the automobile sector. We need to gradually calibrate the prices of petroleum products to a more realistic level.”

Kirit Parikh, chairman, IRADe, highlighted the impact of under-recoveries on the financial stability of the country and suggested liberalising the price of diesel. Comparing long-term benefits of liberalising the price of diesel, he stated: “If you free diesel prices fully at one go to market prices, you may find high inflation for the next 3-4 months, but by the sixth month, inflation would get moderated.” Dr Parikh also spelt out several alternative measures for addressing the concerns of high diesel subsidies.

GM India’s Lowell Paddock said, "We firmly believe that diesel is one the best options available in the automotive sector with 25 percent better fuel efficiency. Today diesel vehicles are quieter, safer and more 'fun' to drive. We feel that every fuel has a role to play and it should not be influenced by policy prescriptions or separate taxation.”