Oil Minister S Jaipal Reddy has proposed a new tax on diesel cars, Special Tax has been put forth the Government of India for approval. If this proposal is accepted, it would mean an additional price increase of Rs.1.7 lakhs on small diesel cars and an addition of Rs.2.55 lakhs for medium to large diesel cars.
The proposal to levy Special Tax on diesel cars is bound to get consumers up in arms and protests from auto manufacturers who are already reeling under slow sales, the slowest in the past seven months. During the month of May, domestic auto sales declined by 24%, as compared to a year ago, primarily due to higher fuel prices and escalating interest rates.
Thanks to meteoric rise in the price of petrol, consumers are forced to buy diesel powered cars, which are not only more efficient, but also have a cheaper running cost due to cheaper diesel price. Comparing a diesel car vs a petrol car, it is found that diesel powered car saves 30% more money than petrol powered ones. In the month of May last year, only 38% of the cars sold in India were powered by diesel, but in May 2012, this figure has crossed 55%.
Now with the proposal which may come into effect very soon, auto manufacturers fear demand may shrink. The proposal has already received a thumbs down from various analysts and private players but Reddy pointed out that these additional duties would be equivalent to the minimum benefit that a diesel car owner derives from the price difference over petrol while taking into account the 10 year assumed life of a vehicle. Reddy’s contention is that the government will be asking diesel car owners to pay upfront the price differential with petrol whereas petrol car owners have to pay up every time he tops up his petrol tank.