Hike diesel price by Re 1, says heavy industries ministry

An inter-ministerial group (IMG) of the ministry of heavy industries on the imposition of additional excise duties on diesel cars has recommended an increase of Re 1 per litre on diesel. The IMG meeting included the National Manufacturing Competitiveness Council and Planning Commission which favour hiking diesel prices versus imposing additional excise duties on diesel-engined cars. SIAM and ACMA were also invited to provide data on it. With the Budget 2012-13 a few days away, the ministries of petroleum and heavy industries are out to woo the finance department which is in the process of finalising incentives and legislations for the sector.

An earlier pre-Budget memorandum from the petroleum ministry recommended imposition of additional excise duty on diesel cars. Its justification was that the target objective of subsidies is not the personal passenger car segment. When the heavy industries ministry became aware of this, it cried foul saying that being the administrative body of the auto sector, it should have been consulted before. In its pre-Budget memorandum, it brushed aside the recommendation to impose additional excise duty on diesel-engined cars.

SIAM's director-general Vishnu Mathur says SIAM has always maintained that diesel prices be market-linked and taxes on cars should not be technology driven. “Personal diesel passenger cars constitute one percent of the total diesel portfolio and levying excise duty on them will distort tax structures and lower sales of passenger cars,” he adds. On the other hand, a Re 1 increase on diesel will boost revenues by an estimated Rs 6,500 crore per annum compared to Rs 8,000 crore earned from additional excise duty on cars, estimating Rs 80,000 additional tax per car. But this earning will drop after adjusting for a tax refund.

About 8-10 lakh diesel cars are believed to be sold in 2011-12, of the total sales of an estimated 2.4 million this fiscal. About 60 million metric tonnes of refined diesel are produced compared to 14 million metric tonnes of petrol. Industry heads are asking for a narrowing of prices between the two fuels by linking diesel price to market forces and hiking its price slowly and steadily. SIAM's pre-Budget proposals meanwhile recommend that the additional excise duty of Rs 15,000 currently levied on MUVs and passenger cars (other than small cars) be withdrawn and Central Sales Tax (CST) be abolished or reduced to one percent. Further, SIAM suggests GST be enforced across all states and its draft modalities and procedures be circulated in advance as a minimum of three months for the transition to take place. Also, taxation of used vehicles as well as road tax should be subsumed in GST. The Centre is expected to introduce GST in October.

SIAM wants excise duty or an equivalent GST rate on passenger cars (other than small cars) to be at a par with the Central CENVAT /GST rate. The suggested rate is 16 percent till GST arrives. Also, the concessional excise duty should be applicable on small cars, MUVs, two- and three-wheelers and CVs.

SHOBHA MATHUR