In a significant breather for car makers the Government may not go ahead with a proposal to levy additional taxes on diesel vehicles.

This, despite pressure from the Petroleum Ministry and environmentalists. Official sources told Business Line that the Government does not want to take any steps that can stall the growth of one of the few sectors that is still in the positive territory.

Opposition to the proposal had seen intense lobbying both by the auto industry and the Ministry of Heavy Industries.

Earlier this month, the Heavy Industries Minister, Mr Praful Patel, had written to the former Finance Minister, Mr Pranab Mukherjee.

He said that any move to increase taxes on cars would jeopardise the chances of achieving the targets set by the Government’s Automotive Mission Plan (AMP).

Additionally, the higher taxes are unlikely to shift demand to petrol cars, the Minister said adding that it would slow down car sales all together.

This would mean reduced contribution to the country’s excise tax collections – the sector contributes 21 per cent currently.

Mr Patel’s June 15 letter follows earlier communication, sent on March 1 and December 19 last year.

“The overall growth rates (for the auto industry) are still way below the desired level of 12-14 per cent envisaged under the AMP,” said Mr Patel in the June letter.

The AMP hopes to increase the auto sector’s turnover to $145 billion by 2016 (from $45 billion in 2006), while adding 25 million new jobs (from 10 million) across the value chain. The contribution to GDP is expected to touch 10 per cent from 6.5 per cent.

(This article was published on June 28, 2012)
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