Government Planning to Raise the Excise Duty on Diesel SUVs

The government might impose a higher excise duty or a surcharge on diesel sports utility vehicles (SUVs) in Budget 2013-14.The government already allowed the oil companies to raise diesel prices by 50 paise/month, is now exploring ways to cut subsidies on the fuel.



Almost 16 per cent of subsidised diesel in the country was consumed by cars and SUVs. So the government wants to discourage the use of the fuel by passenger cars, as it offers unintended benefit to diesel cars owners, which results in a surge in the sale of such vehicles. The difference between diesel and petrol prices stands at more than Rs 20 a litre in Delhi. The consequences of subsidised diesel being used by SUVs was already been remarked by former Environment Minister Jairam Ramesh in 2010.



The government imposes an excise duty of 12 percent for small petrol cars with an engine capacity less than 1200 cc and for diesel cars with an engine capacity less than 1500 cc. Moreover, the Government also imposes 24 percent excise duty on cars with length more than four metres but engine capacity of less than 1200 cc in petrol variant and 1500 cc in the diesel variant.

Utility vehicles account for 20.6 percent of the passenger vehicle market. Sales of utility vehicles grew 59 per cent to 402,921 units between April and December this year. Sales in the overall passenger vehicle (such as passenger cars, utility vehicles and vans) market increased by 8.4 per cent to 1,959,444 units.



In pre-Budget discussion with Finance Minister P Chidambaram, Mahindra and Mahindra CMD Anand Mahindra said: “The auto industry should not be treated as a golden goose which can be taxed.”

Mr. Kirit Parikh, former Planning Commission member and the head of Integrated Research and Action for Development(IRAD) said that there is a proposal to levy an annual road tax which is higher by up to Rs. 50,000 for diesel SUVs has been made to the Finance Ministry to help reduce the fuel subsidy burden.



The main difference on road taxes between diesel and petrol-driven vehicles is, for diesel versions of normal cars additional tax can be higher by Rs 10,000 to Rs 20,000 and for diesel SUVs it should be higher by up to Rs 50,000.

"Instead of looking at a one-time diesel tax on new purchases, the alternative could be to abolish the existing one-time road tax and make it annual and apply a differential between petrol and diesel vehicles," Parikh added.



Mahindra & Mahindra dominates the country’s UV(utility vehicle) market, with a market share of 47.6 per cent. Where some of its best-selling include Scorpio, Bolero, Quanto, XUV 500 and Xylo. Other vehicles include Fortuner and Innova by Toyota Kirloskar, MUV Ertiga by Maruti Suzuki, Safari Storme, Sumo, Aria, Venture by Tata Motors and Captiva by General Motors.