SIAM talks tough against proposed diesel vehicle tax

THE SOCIETY OF INDIAN Automobile Manufacturers (SIAM) has been spearheading the industry's drive to defend itself from any new tax on diesel vehicles. Senior director SugatoSen responds to Autocar Professional’s queries related to the current hot topic.

Why does SIAM oppose the proposal of levying an additional tax?

Because there’s no logic for levying any additional tax on diesel cars. In fact, any additional tax will unnecessarily stigmatise a fine technology which will put the industry at a disadvantage when fighting climate change and fuel- saving battles.

Is hiking diesel prices a better option?

SIAM has always been saying that diesel prices should be decontrolled. The increase should be in a calibrated manner so that it does not hurt the consumer and also reduce the huge price differential between petrol and diesel. A hike in diesel prices will lead to further inflation, hence a need to impose tax on diesel passenger vehicles. What’s your take on this?

I do not believe there will be huge inflationary pressure even if we increase diesel price by 10 percent (Rs 4.00/litre). First, such an increase will allow the government to decrease petrol price by Rs 16/litre without any revenue implication since our consumption of petrol is a fourth of diesel consumption. If you take any product, the distribution cost would be 8-12 percent of the product’s price. How much of total distribution cost is transportation cost? It could be 50 percent – that is 4-6 percent of product price. How much of transportation cost would be diesel cost? If it is 25 percent, then 1-1.5 percent impact on price – and that will be a one-time increase and the economy will easily get used to the structure.

This will put diesel price at 40+4=Rs 44/litre and petrol can come down to 72-16= Rs 56/litre without any revenue loss to the government and make the price differential less market-distorting.

How much has the sales ratio of petrol and diesel vehicles changed since 2010?

The share of diesel car sales has increased from less than 30 percent two years ago to about 48 percent in April this year.

Is the current environment conducive for fresh investments by industry? If not, how can it be improved?

We have been expressing our concerns that unless there is a stability of policies, it will be difficult to attract investment to the industry. Key concerns are: India-EU FTA: If CBU vehicles are included and tariff is reduced, investment will be seriously negatively affected.

Fuel policy: Unless clarity is established, companies are unable to take any decision.

High tax rates: Companies are losing confidence on government’s intent on growing this industry.

State level levies: Today most of the state governments are unilaterally imposing higher and higher rates of taxes on motor vehicles – road tax and VAT, among other things. Also, state governments are going back on their promised incentives for bringing investments to their states. This is leading to an environment of mistrust and uncertainty.