Tuesday, 5 June 2012

Finance Minister plans to hike tax on diesel vehicles

Unable to bite the bullet on diesel subsidies, the finance ministry is now looking to raise excise duty on vehicles using the subsidised fuel to discourage consumption of the fuel and bolster its tax revenues. 

"The proposal is there and that is being examined by finance minister (Pranab Mukherjee). Consultations are being held and an appropriate decision will be taken by the government in due course," the Central Board of Excise and Customs (CBEC) Chairman S K Goel told reporters here. 

The proposal had been mooted by the petroleum and natural gas ministry ahead of the budget but the finance ministry opted for an across-the-board increase of 2% in excise duty to 12% instead.

The petroleum ministry has for long argued that the rich should not get subsidised fuel. According to ministry estimates, 15% of diesel consumption is accounted for by personal cars and SUVs. Petrol cars of engine capacity under 1,200 cc and diesel cars under 1,500 cc attract an excise duty of 12%.

The duty on such cars with length exceeding four metres is 24%. Petrol and diesel driven vehicles having length exceeding four metres and engine capacity of over 1,200 cc and 1,500 cc, respectively, attract an ad valorem duty of 27% and a specific duty of 15,000. 

Equitable duty makes diesel cars a preferred option as diesel is a subsidised fuel and shielded from regular increase in prices. 

Car buyers have been making a beeline for diesel cars and there exists a waiting period of 2-3 months for most diesel models. The government, facing flak for increase in petrol prices, has been unable to muster political courage to deregulate diesel prices to contain its subsidy bill. 

The finance ministry meets about half of the revenue that state-owned oil firms lose on selling diesel, domestic LPG and kerosene at government-controlled rates. 

Even after the recent sharp drop in international crude prices, oil companies claim they lose more than nearly 13 per litre on diesel for selling it at government-controlled prices. The government has provided 43,580 as fuel subsidy in the current financial year but it is already exhausted in clearing last financial year's dues. 

How it manages the oil subsidy is crucial to its plan to lower the fiscal deficit to 5.1% of GDP from 5.76% in the last fiscal and contain total subsidies to 2% of GDP. Imposition of duties on diesel cars would not the hurt common man, making it a politically feasible decision. An increase in excise duty would give a leg -up to indirect tax revenues that grew by 10% at 33,045 crore in April, 2012. 

On Monday, finance minister Pranab Mukherjee told the annual conference of excise and customs officials to attempt to exceed FY13 budget target of 5.05 lakh crore. "I am confident that the department would leave no stone unturned in ensuring that the targets for the current year are not only met but handsomely exceeded," Mukherjee said.


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