Excise on diesel SUVs may go up

After allowing oil companies to raise diesel prices by 45 paise a month, the government, exploring ways to cut subsidies on the fuel, might impose a higher excise duty or a surcharge on diesel sports utility vehicles (SUVs) in Budget 2013-14.

The hike, however, might not be  on all diesel cars.

The SUV market is dominated by Mahindra & Mahindra. Some other players are Toyota Kirloskar, Maruti Suzuki, Tata Motors and General Motors.

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A finance ministry official told Business Standard the idea of a higher excise duty on diesel cars was being explored for some time but could not be implemented due to opposition from automobile companies.

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

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The finance ministry official said, "The peak duty rate on cars is already high. Increasing it further on all diesel cars might not be possible but a higher tax on SUVs could perhaps be looked at. Most SUVs today run on diesel and are fuel guzzlers," adding those who could afford to buy SUVs should not mind paying higher taxes.

SUVs could be made dearer in various ways - through creation of a new rate slab, addition of a fixed duty above the ad valorem rates, or levy of a surcharge.

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The Kirit Parikh panel on pricing of petroleum products, which had given its report in 2010, had proposed an additional duty of Rs 80,000 on diesel SUVs. It had also proposed an annual road tax of up to Rs 50,000 a year on diesel cars.

About 16 per cent of subsidised diesel sold in the country is consumed by cars and SUVs.

The government wants to discourage the use of the fuel by passenger cars, as that gives unintended benefit to owners of diesel cars, leading to 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.

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Utility vehicles account for 20.6 per cent 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 (passenger cars, utility vehicles and vans) market increased by 8.4 per cent to 1,959,444 units.

Mahindra & Mahindra dominates the country's UV market, with a market share of 47.6 per cent.

The Scorpio, Bolero, Quanto, XUV 500 and Xylo are some of its best-selling offerings.