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Corporate Nov 26, 2012

Want to own an SUV? Think of Kirit Parikh and the fee first

By Sindhu Bhattacharya

If you are planning to buy a diesel powered SUV or a sedan, think twice. The man who earlier proposed a deadly diesel tax of Rs 1,80,000 on diesel SUVs-which was later junked after hectic lobbying by the powerful vehicle makers-is now proposing an even bigger, annual tax on diesel cars. Kirit S Parikh, who earlier headed the Parikh Committee on Pricing of Petroleum Products, now says instead of levying a one-time fee on diesel vehicles, such cars should be charged an annual permit fee. To make matters worse, this fee-if approved-would obviously also apply to existing diesel vehicles.

Parikh said at an event today that he has proposed up to Rs 50,000 per year levy on diesel cars in the form of annual road tax. He confirmed this to Firstpost later, arguing that at current prices, a diesel vehicle owner gets a subsidy of Rs 25 per litre which translates to Rs 50,000 per year per diesel car. He has calculated that small and medium diesel car owners similarly get a subsidy of Rs 20,000 and Rs 30,000 every year. (Parikh has based his calculations on a diesel SUV owner driving 25,000 km every year).

Kirit S Parikh. AFP

In his comments sent to Firstpost, Parikh says, "These cars get large subsidy on two accounts. They escape the larger excise on petrol compared to diesel and they also benefit from the subsidy on diesel price. The Parikh Committee on Pricing of Petroleum Products had recommended decontrol of both petrol and diesel prices and a differential excise on diesel cars equivalent to the present value of the difference in excise tax on petrol and diesel used over 10 years. This would be around Rs 1,80,000 for diesel sports utility vehicles (SUVs). However, the car manufacturers opposed this additional excise as it would raise the purchase price and affect the sale of diesel cars. Moreover, the cars sold earlier escape this tax."

He went on to suggest an alternative: an annual permit fee for all diesel vehicle owners and charge for not only the difference in excise tax between diesel and petrol but also for the subsidy on diesel. He reasoned it thus: An SUV user drives around 25,000 km per year. At 12km/litre, he will consume around 2,000 litres per year. The excise difference between petrol and diesel is Rs 12.72 per litre.

The subsidy on diesel is around Rs 12/litre. The price difference in retail price of diesel and petrol is more than Rs 25 per litre in Delhi. It is pertinent to point out here that the committee chaired by Parikh had released a report in February 2010, 'A Viable and Sustainable System of Pricing of Petroleum Products' in which he had made an erroneous basic assumption: that passenger vehicles consume 15 percent of the subsidised fuel, an argument which was then used by both the Petroleum Minister Jaipal Reddy and the Parliamentary Standing Committee on Petroleum and Natural Gas for suggesting higher excise on diesel cars.

The vehicle makers' lobby group, Society of Indian Automobile Manufacturers (SIAM), later proved that this number is less than even 2 percent.

But will Parikh's suggestions be implemented this time? Praful Patel, the heavy industries minister, made a strong pitch today for putting any additional taxation on diesel vehicles in perspective with additional investments diesel vehicles entail in India's manufacturing. He said since diesel vehicles are about 25 percent more fuel efficient than their petrol counterparts, their increasing use means overall lesser fuel consumption by the automobile sector which should be positive for the economy. He also spoke of how increasing dieselization means higher investments in manufacturing diesel vehicles in India. All in all, there appears to be a strong economic case for encouraging diesel use in vehicles, the minister said.

But if existing and new vehicle owners now have to shell out Rs 50,000 per year as road tax, will they seem as enthusiastic about diesel cars?

by Sindhu Bhattacharya

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