In an about turn from his previous proposal for an additional excise on diesel cars, Dr Kirit Parikh, has said that the annual road tax system should instead be brought back with a “differential tax” for diesel vehicles.

This would also affect existing diesel cars on the road, which will have to pay higher road taxes. However, manufacturers may get a sales boost as the initial price of such vehicles would reduce. This is because road tax, which is currently charged only once on purchase, would then be paid annually over the lifecycle of the vehicle.

“The logic for putting extra tax on diesel cars remains. One could re-introduce annual road tax and have a differential tax for diesel vehicles,” Dr Parikh said.

“Many manufacturers fear that higher excise would raise the initial cost of the car and people would buy less. What we are suggesting would reduce the initial cost. Old diesel car owners will also be paying more,” he added.

A system of annual road tax payment, along with car insurance renewals, used to be there in the country 10-15 years ago.

A Committee chaired by Dr Parikh had released a report in February 2010, ‘A Viable and Sustainable System of Pricing of Petroleum Products', which had suggested an additional Rs 80,000 excise duty for diesel cars. It had also assumed that passenger vehicles consume 15 per cent of the subsidised fuel, an argument which was then used by both the Petroleum Minister, Mr S. Jaipal Reddy and the Parliamentary Standing Committee on Petroleum and Natural Gas for suggesting higher excise on diesel cars.

Dr Parikh is currently the Chairperson of the Government's Expert Group on Low Carbon Strategies for Inclusive Growth.

“I had suggested that diesel price should be competitive and free, but the Government has not addressed it. Their main concern is spill-over to inflation. I have argued that the under recovery (of oil marketing companies) will raise inflation anyway three months down the line. One has to recognise this,” he said.

He also suggested that the subsidy on diesel should be kept at one constant number, while the price could change as per global prices of crude.

This way the oil marketing companies and the Government will know what kind of an impact to expect on its financials every year.

“Suppose diesel is being sold at Rs 40 (per litre) today and if you liberalise it will be Rs 45. So what I am saying is that the Rs 5 subsidy should not change if the global diesel prices increase tomorrow - if the actual prices becomes Rs 46 after a Rs 1 increase, the Government should then charge Rs 41 per litre (and keep subsidy at Rs 5),” Dr Parikh said.

Error in data

Dr Parikh also accepted that that the 15 per cent share of diesel consumption for passenger vehicles mention in his 2010 Committee Report is wrong and that fresh calculations are being carried out to revise it.

At present, private passenger cars account for 0.6 per cent of total diesel consumption as per the Working Group on Petroleum at the Planning Commission.

“I think there are some questions on that (the 15 per cent figure). We had sourced it from Petroleum Planning and Analysis Cell. They had carried out some surveys on the basis of which they had arrived at this. They have again carried out surveys and we will know a clearer answer then. There may be some dips,” he said.

He added, “I think non-commercial private four wheelers, which includes taxis and jeeps, should come to 3-4 per cent (of diesel consumption).”


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