TAX ON DIESEL CARS - WHAT'S WRONG WITH THAT?

By Ruma Dubey

World over Governments are grappling with ways and means to hike taxes, usher in austerity measures, all to boost their sagging revenues. Ditto for India too. After doling out bags full of money on social, vote catching policies and inculcating the habit amongst farmers to not repay loans, as they now expect the falling UPA to once again announce “loan maafi” with elections round the corner, our Govt is also trying its level best to increase revenue. And as usual, the best way that it see’s doing this is by increasing taxes. Today we are paying a service tax on almost everything and take home pay cheques are dwindling, yet the Govt is looking at ways and means to bring in more taxes.

There is today a huge hue and cry over the proposed taxation on diesel vehicles. The morning trades started off with most auto stocks losing ground, M&M losing the most as its almost entire portfolio has diesel vehicles and Tata Motors too which has a substantial portion of its vehicles using diesel.  Though there is no official word yet from the Govt, grapevine has it that the govt plans to impose additional levies of Rs.1,70,000 on small diesel cars and Rs.2,55,000 on medium and large diesel vehicles such as sedans and SUVs.

The monthly auto figures show clearly that there is a growing preference for diesel SUVs. Currently SUVs and MPVs or multi-purpose vehicles account for 15% of the total passenger car market in India and this is expected to go up to 25% over the next 3 years. 15 new models for SUVs are expected to hit the roads this year and all are in the fray – Hyundai, Ford, Renault, Nissan, Tata Motors, M&M. This craze for SUVs in a country like Dubai is understandable as fuel there is cheaper than water. But in a country like India, where fuel costs are rising and expected to go up further, interest rates are high and EMIs burn a hole in the pocket, this lure for SUVs makes no economic sense. There are many reasons to justify the buying of diesel SUVs yet, the real reason is that people in India buy an SUV today simply because they know and want to exhibit that they can afford to buy a SUV. They buy simply because they can. Surely with families becoming smaller, cars should have ideally got smaller but today, smaller families have bigger homes and bigger cars. Like America, India is unfortunately fast moving towards consumerism. Every buy is today driven by this need to ‘show’ rather than about practicality. Strangely, this new generation, which is buying SUVs is stated to be environmentally conscious so then how come they opt for gas guzzlers like SUVs? Or is being selectively ‘environmentally friendly’ also about creating an image, being ‘cool’.

The market is unhappy, obviously because it hurts the bottomlines of auto companies. But for us, as merely a man on the street, this is not a bad move. Infact it is a move which should be welcomed. The price difference between petrol and diesel is today at almost Rs.30/litre. And the Govt prefers not to touch diesel because it is a fuel used by the farmers to run their tractors and by trucks to transport goods within the country thus fearing political repercussions and stoking inflationary pressures. And this move to selectively tax those who are misusing lower diesel prices to buy fuel guzzling SUVs which run like lawn mowers on the roads, threatening to mow down anyone who comes in their way is a step in the right direction. This way, the farmers and the truckers, for whom the price of diesel has been kept lower in the first place will be protected while those misusing will pay more. If one can afford to buy a SUV, surely one can pay up this tax too.

This does not obliterate the Govt from the complete mess it has created on the fuel subsidy front. And taxing of such diesel cars, UVs and SUVs will not necessarily turn around the fortunes of the govt. A report made by Crisil, states that of the total diesel consumed in FY12, cars & UVs used up only 12% which is one third of what trucks and buses consumed. Of the total estimated diesel vehicles of 3.6 million, 23% were owners of cars and UVs, which is not much. Yet, this misuse of diesel needs to be corrected.

Companies like M&M and the rest are bemoaning the fact that they have today created facilities for diesel vehicles and such moves would be detrimental. But they have cashed in till the going was good, right? And as auto companies, haven’t they got to take the initiative to introduce greener vehicles. It may sound very Utopian today but that is the future; they need to look for fuel alternates. Companies abroad are already producing hybrid vehicles as a growing part of their portfolio so why not here? Biofuels will be the future of the world and auto companies need to work towards that. Yes, one can crib that they need Govt support but just as they are today lobbying for not imposing the diesel tax, why not lobby for making the atmosphere conducive for biofuel vehicles?  Ethanol is a biofuel which needs to be pursued with more vigour; it has come to a standstill at the moment but it needs to be revived urgently. Do you see anyone lobbying for that?

If oil companies, along with support from auto companies start investing their surpluses into alternative fuel research, it will help India move towards new forms of energy and new economic independence.