Flat tax will hamper diesel car manufacturers’ plans

By | February 5, 2010

Manufacturers focusing primarily on selling diesel cars such as Mahindra & Mahindra, Tata Motors, Toyota, Mercedes, BMW and Volkswagen foresee a big fall in sales should the government accept the suggestion by Parikh committee to levy a flat tax of Rs 80,000 on diesel cars, due to increasing price differential with petrol models.

Diesel cars comprise 35% of the 15 lakh yearly car sales in India. Their sales are increasing at 20% as against the total market growth of about 12%.

In a report submitted by the Parikh committee, it has been suggested a hike in prices of petrol as well as diesel.

The aim of this suggestion is mainly to demotivate the sales of diesel cars and utility vehicles, to lower the demand for highly subsidised fuel which has heavily burdened the government financially. This report is expected to come up for discussion the cabinet next week.

While diesel is a cheaper fuel as compared to petrol, the price of diesel cars is Rs 70,000 to Rs 1 lakh high than the petrol models. With the flat tax, the cost of diesel cars is expected to go up further and do away with the lower operational costs arising due to lower fuel

Although diesel as a fuel is cheaper than petrol, diesel cars tend to be more expensive than the petrol variants. The is expected, however, to raise prices further and cancel out the lower running costs that accrue from costs..

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