Diesel cars may become expensive as Finance ministry mulls additional taxes

The last month’s hike in petrol prices by almost Rs 7.50 per litre was bound to have a direct impact of sales of petrol cars. Not that the petrol cars were doing well for the last few months, but the uncertainty and constant threat of price hikes has forced many buyers to shift to diesel cars, in spite of disproportionate premium. 

Of course, this also means that there is unhealthy rise in demand for diesel cars – and the government is not very happy about it, as this is a subsidised fuel. The finance ministry hence now plans to impose additional excise duty on diesel vehicles, in order to limit usage of diesel by discouraging buyers and also to get additional tax revenue.

The chairman of Central Board of Excise and Customs confirmed that a proposal is being studied by finance minister, Pranab Mukherjee, and decision will be taken soon. A similar proposal was with the government during 2012-13 Union Budget, but a 2 per cent excise hike was then implemented across-the-board; also due to strong opposition from auto industry.

After the recent hike and a nominal roll-back in petrol prices, we were certain that government might reconsider additional taxes on diesel cars. If implemented, this will certainly have derogatory effect on the industry; as the auto industry is already reeling under pressure from inflation, high interest rates and high petrol prices. It may also impact investment in the auto sector and industry is also expected to oppose the proposal once again.

Another factor that needs to be considered by the government is that nominal hike in diesel car taxes is not going to affect their sales much. As running cost will still be considerably less as diesel still costs lot less and such vehicles are more efficient.