India’s transport minister wants higher tax on diesel vehicles

Mumbai: India’s transport ministry is pushing for additional tax on diesel-powered vehicles to force the industry to curb production of the polluting engines.

Transport Minister Nitin Gadkari will propose levying 10 per cent more goods and services tax on diesel engine vehicles to Finance Minister Nirmala Sitharaman on Tuesday evening. The additional GST could be in the form of a pollution tax, Gadkari said at an auto industry conference in New Delhi.

“I strongly urge you to cut down production of diesel vehicles,” Gadkari said. “If not, we will be compelled to raise taxes. These tax hikes will be substantial, making it challenging to sell diesel vehicles.”

Shares of Mahindra and Mahindra and Tata Motors, two of the top local producers of diesel powered vehicles, extended losses after Gadkari’s comments.

Diesel is a key fuel source powering tractors in farms to buses and trucks that move people and goods. Earlier this year, a panel set up by the oil ministry recommended a ban on diesel vehicles in cities with over a million people and highly polluted towns by 2027.

The shift away from diesel and gasoline, which account for more than half of India’s oil demand, is seen crucial for energy transition in the nation that houses some of the world’s most polluted cities. Indian transport sector’s transition to electric vehicles is still lagging behind others such as China, even as the government set a target to sell only electric cars by the end of 2030.