Jaipal Reddy wants Rs 80,000 additional tax on diesel cars

NEW DELHI: If S Jaipal Reddy has his way, diesel car prices would rise substantially shortly. The oil minister on Friday formally proposed to finance minister Pranab Mukherjee to slap an additional excise duty of Rs 80,000 on diesel vehicles in the Union Budget, a move that is bound to be opposed by the automotive industry and the department of heavy industries.
During his meeting with Mukherjee on the oil ministry's budget wish list, Reddy also sought a 10-year tax holiday for oil and gas hunting companies and new refineries as well as removal of 5% import duty on gas imported in ships.
The idea of additional excise levy has been tossing around in the oil ministry since 2008-09 as a way of raising funds to at least partially meet the Centre's burden on subsidizing diesel. But the idea never made it to the formal discussion table since it was felt that the funds garnered would not be significant in view of the massive size of the fuel subsidy burden.
But recent developments have changed the circumstances. On Wednesday, Reddy admitted that political compulsions and the fear of across-the-board price rise has prevented the government from raising diesel price. This has created a differential of about 30% between diesel and petrol, tilting the balance in favour of diesel vehicles that now account for 40% of all car sales.
The shift has also affected the fuel consumption pattern and diesel demand growth outstripped petrol for the first time in 15 years last year, first reported by ToI on October 12, 2011. This has strengthened the concerns over dieselization of the economy, and added teeth to the demand for additional taxes on diesel vehicles from the green lobby.
Given the poor shape of the government's finances, the additional tax may make it to the Budget this year, opposition from the industry notwithstanding. But the tax is more likely to be graded according to a vehicle's engine capacity or weight, with imported diesel SUVs attracting the highest slab.
In his bid to promote clean energy, Reddy also sought 'declared goods' status for domestic and imported natural gas so that the environment-friendly fuels attract a uniform sales tax of 5% instead of current system of varied tax rates - ranging from 12.5% in Gujarat and Maharashtra to 20% in Assam.