In a significant move aimed at reducing emissions, Union Road Transport and Highways Minister Nitin Gadkari recently suggested implementing an additional 10% GST on diesel vehicles. This announcement, made at the Society of Indian Automobile Manufacturers (SIAM) annual convention, caused immediate ripples in the market, with shares of oil marketing and automobile companies taking a hit.
Market Impact and Clarification
Following Gadkari’s remarks, shares of major oil companies such as Hindustan Petroleum, Bharat Petroleum, and Indian Oil saw declines of 5.3%, 4.11%, and 3.78%, respectively. Auto companies also felt the impact: Ashok Leyland fell by 2.68%, Tata Motors by 2.19%, Eicher Motors by 1.85%, Mahindra & Mahindra by 1.55%, and TVS Motor by 1.17%. The BSE Auto index itself dropped by 1.77% to 36,406.77.
Gadkari later clarified on social media that there is currently no formal proposal under government consideration to impose the additional tax. He emphasized the necessity of shifting towards cleaner, greener fuels to achieve Carbon Net Zero by 2070 and reduce air pollution from diesel.
Rationale Behind the Proposal
Gadkari highlighted the severe health and environmental concerns posed by diesel emissions. He stated that increasing the tax on diesel vehicles is a strategic move to phase them out and promote the adoption of alternative fuels. The Minister underscored the urgent need for the automobile industry to transition from fossil fuels to alternatives like biofuels, ethanol, green hydrogen, and electric vehicles.
He pointed out that the auto industry is growing at an annual rate of 15-18%, exacerbating the consumption of fossil fuels and escalating pollution. The shift to alternative fuels, he suggested, is crucial for addressing these challenges.
Current Tax Structure and Future Recommendations
Currently, automobiles in India attract a 28% GST along with an additional cess that varies from 1% to 22%, depending on the vehicle type. SUVs, for instance, face the highest tax burden with a 28% GST plus a 22% cess.
Earlier this year, a government panel recommended a ban on diesel-powered four-wheeler vehicles by 2027, advocating for a switch to electric and gas-fueled vehicles. The panel also suggested that no new city buses should be non-electric from 2024 onwards.
Conclusion
Gadkari’s proposal, although not officially under consideration, has sparked significant market reactions and highlighted the critical need for the auto industry to pivot towards sustainable fuel alternatives. As India aims to meet its environmental targets, such measures could play a pivotal role in transforming the transportation sector into a cleaner and more sustainable domain.
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