Parikh panel wants higher annual tax for diesel cars

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SummaryIn 2010, when the Kirit Parikh committee proposed an additional R80,000 excise duty on diesel cars to reduce the subsidy burden on state-run oil retailers, the auto industry was up in arms saying higher taxes would affect technology and sharply hit sales.

In 2010, when the Kirit Parikh committee proposed an additional R80,000 excise duty on diesel cars to reduce the subsidy burden on state-run oil retailers, the auto industry was up in arms saying higher taxes would affect technology and sharply hit sales.

Three Union Budgets have been announced since then and the government has, so far, kept the industry's wish intact with no extra levies.

Now, Parikh is back with a new plan. The chairman of the expert group for low carbon strategy for inclusive growth, Planning Commission, has proposed the re-introduction of a road tax system with an up to R50,000 higher levy for diesel SUVs and R10,000-20,000 on smaller diesel cars. If implemented, the new tax would also be applicable on diesel cars running on the road.

“We have already sent the proposal to the finance ministry. The alternative could be to abolish the existing one-time road tax, make it annual and apply a differential between petrol and diesel vehicles,” Parikh, who is also the chairman of the think-tank - Integrated Research and Action for Development, told FE. The new proposal may seem lower than the previous suggestion for an additional excise, but it actually works out to generate far more revenue for the government over a vehicle's life-cycle.

This is because the road tax will be charged annually, whereas the excise would have been a one-time payout at the time of purchase. Society of Indian Automobile Manufacturers (Siam) vice-president and vice-chairman of Toyota Kirloskar Motor, Vikram Kirloskar, said such a move would not make sense.

"Today, 45% of selling price of a vehicle is tax. We don't want diesel vehicles to be over-taxed. We would rather have market pricing of diesel," he added. “The logic for putting extra tax on diesel cars remains. Many manufacturers fear that higher excise would raise the initial cost of the car and people would buy less. What we are suggesting would reduce the initial cost,” Parikh said.

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