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Oil burners may get dearer by Rs 80,000 in all segments
Finding it difficult to raise diesel prices as it may fuel inflation, the finance ministry is considering a proposal to raise excise duty on diesel cars to discourage people from buying cars that run on heavily subsidized fuel. The proposal made by the oil ministry has been pending with the finance ministry for a while. But after the Inter-Ministerial Group (IMG) on inflation met here on Monday, oil minister Jaipal Reddy renewed his demand and said he has asked the government to raise taxes on such vehicles.
A senior official of the Central Board of Excise and Customs said a proposal is pending but no decision has yet been taken. He, however, indicated that the government is now inclined to consider the proposal given the huge gap between the retail prices of the two motor fuels. Before the Union Budget for 2012-13, Reddy had demanded additional excise duty of Rs 80,000 on diesel vehicles. The proposal was, however, opposed by the automotive industry and the department of heavy industries.
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.
Petrol cheaper, but CNG dearer in Delhi
Petrol will cost Rs 1.26 less in the national capital with the Delhi government slashing 20 percent VAT on the hiked component in its budget on Monday. However, the slash in petrol prices may not give much relief to the common man as the Sheila Dikshit-government proposed to hike the price of CNG, used by most people in the city to run their vehicles, by Rs 1.77 per kg.
The finance ministry is considering a proposal to hike excise duty on diesel cars. The idea was mooted earlier but it 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.
On May 28, after the IMG meeting on inflation, the oil minister said: “We are not considering hikes in diesel, LPG and kerosene prices. It is out of question right now.” Reddy was called to the IMG meeting to discuss the impact of diesel price hike on inflation. Chief Economic Adviser Kaushik Basu was also present at the meeting. The recent hike in petrol prices by 11 percent or Rs 7.50 has created a big gap between retail prices of petrol and diesel. While diesel is selling for Rs 41 a litre in Delhi, the petrol retail rate is above Rs 73 a litre. The current subsidy on diesel is more than Rs 15 a litre. The gap has also affected the fuel consumption pattern, and diesel demand growth outstripped petrol for the first time in 15 years last year.
The finance minister is also likely to write a letter to all chief ministers to consider cutting the Value Added Tax (VAT) on petrol. On its part, the Centre may lower its duties to give some relief to the common man in view of the steep hike in petrol prices. Already, Delhi, Uttarakhand and Kerala have announced a cut in VAT on petrol. In the Budget, the finance minister had hiked excise duties for both petrol and diesel cars with engines under 1,200cc (petrol) and 1,500cc for diesel cars with length exceeding four metres to 24% from 22% and a fixed duty of Rs 15,000. Engines exceeding the above capacity were charged with an ad valorem duty of 27%.
The finance minister had, however, avoided raising additional duty separately on diesel cars.
Also Read: SIAM asks govt to hike diesel price, reconsider petrol increase
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