Diesel car buyers may have to shell out more with the Finance Ministry considering the imposition of higher excise duty on such vehicles in the upcoming Budget likely to be unveiled sometime in March.
In order to discourage consumption of subsidised diesel by personal vehicle owners, the Petroleum Ministry had suggested the imposition of higher duty on the purchase of diesel cars to the Finance Ministry.
"We are working on the proposal to impose higher excise duty on diesel cars," a senior Finance Ministry official said.
While the Petroleum Ministry has been asking for a hike in the excise duty on diesel cars, the Heavy Industries Ministry is opposing the move.
The Oil Ministry has argued that the additional amount garnered can be used to make good a part of the loss that fuel retailers incur on the sale of diesel at government-controlled rates. The retailers are expected to incur a loss of about Rs 82,000 crore in 2011-12.
The higher duty would also prevent "dieselisation" of the economy, it has been reasoned.
The Kirit Parikh Committee on Energy had also suggested a one-time additional excise duty of Rs 80,000 on diesel cars, arguing that it would offset the higher excise duty on petrol.
Petrol cars up to 4 metres long and with a 1,200-cc engine capacity and diesel cars up to 4 metres long with a 1,500-cc engine capacity attract 10 per cent excise duty.
In addition, petrol cars longer than 4 metres and with an engine capacity above 1,200-cc and diesel cars more than 4 metres in length and with an engine capacity above 1,500-cc attract excise duty at the rate of 22 per cent, plus Rs 15,000.
The diesel price of Rs 40 a litre in Delhi is Rs 14.57 lower than its imported cost.
Diesel is the most consumed fuel in the country but is sold at a discount to its imported cost. The current diesel subsidy is Rs 14.57 per litre and on an annualised basis, this amounts to Rs 82,000 crore out of the total fuel subsidy, estimated at Rs 136,936 crore in the current fiscal.
Subsidised diesel is the preferred fuel for the transport sector (both trucks and passenger buses) and is also used in irrigation pumps and other agriculture equipment.
Luxury cars and SUVs also run on diesel and so do power generators at malls and telecom towers.
It has long been argued that the rich should not get subsidised fuel. According to Oil Ministry estimates, 15 per cent of diesel consumption is accounted for by personal cars and SUVs.