The attraction of a diesel-fired car could come down soon as the government is considering a plan to cut duty on petrol and at the same time impose an additional tax on diesel-powered cars.
The petroleum ministry has finalised the proposal that will now be sent to the finance ministry. Once implemented it would discourage the use of subsidised diesel for personal transportation vehicles such as sport-utility vehicles.
Diesel consumption by automobiles has overtaken that of petrol since December 2010. Data with the Petroleum Planning and Analysis Cell show diesel usage across the country rose by 6.2% in the first seven months of this financial year to 36.3 million tonnes, while petrol use expanded by 5.3% to 8.7 million tonnes.
Diesel is far more polluting than petrol and so for India?s carbon footprint the numbers are bad news. The news gets worse in the automobile sector as the share of petrol vehicles has fallen behind diesel ones to 35% while the latter has risen to over 40% since June 2010 when petrol prices were decontrolled.
The oil ministry?s proposal seeks a cut in the excise duty on petrol by at least R2 a litre from the current R14.35 a litre. Compared with this, diesel attracts only a R2 per litre excise duty. (Branded petrol as well as diesel, however, attract slightly higher excise duty? R15.50 a litre on petrol and R5.75 a litre of diesel).
Oil minister S Jaipal Reddy also wants a higher tax on personal diesel vehicles as they account for 15% of the country’s diesel consumption. The idea is that this will make the cars even more expensive than now compared with petrol driven ones, pushing down their appeal.
At present, cars bear different rates of excise duty ? 10% for small cars and 22% for big ones ? without reference to the fuel they use.
The proposal was originally made by the Kirit Parikh committee that said diesel car owners should pay more excise duty on their fuel to bring their tax liability on a par with petrol car owners, without affecting other diesel consumers like farmers, truckers and those in the transportation business, who pass on their fuel cost to the final consumers and impact inflation.
?It is a good step to control future consumption of diesel, but it is not enough to curb the consumption by vehicles already plying on the road,? said Kalpana Jain, senior director (energy), Deloitte Touche Tohmatsu India.
Subsidised diesel accounts for nearly half of the total losses incurred by oil companies IOC, HPCL and BPCL on their retail business, which this year is projected to scale Rs 1,37,000 crore.