Govt plans ‘green’ cess on diesel variant

If implemented, it would be a cess with a difference. The government is planning a cess of Re 1 per litre on a diesel variant called light d...

If implemented, it would be a cess with a difference. The government is planning a cess of Re 1 per litre on a diesel variant called light diesel oil (LDO) which is traditionally used in low speed compression engines found in small generators and small power plants. The cess is aimed at checking adulteration of this diesel variant with high speed diesel (HSD) which is used in engines of cars, tractors etc. The adulteration of the traditional diesel with the light variety also causes high degree of pollution and hence the effort of the government to discourage adulteration through changes in the tax structure would also reduce pollution.

The lighter variant of diesel enjoys a lot of incentives within the tax regime which makes LDO much cheaper than diesel. Sources in petroleum ministry say apart from being exempt from the Re 1 per litre road cess, LDO is also taxed by the various States (sales tax) at almost half the rate of diesel. Further, while taxes on the lighter variant of diesel are modvatable, those on diesel are not.

Sources also said, the lighter variant of diesel enjoys the tax incentives coupled with a lower refinery transfer price (the basic price). The basic price of LDO is just 70 per cent of that of diesel price. This has encouraged the dealers and consumers to go in for LDO as a substitute for diesel. “When lighter variant of diesel is used in engines with high compression, pollution is evident”, a senior official in the petroleum ministry added.

The petroleum ministry and the finance ministry has agreed on some proposals to check this menace. Apart from introducing the ‘green’ cess on LDO in this Budget, the government has also written to all the State governments to bring in total parity in the sales tax of diesel and its lighter variant. Further, in this Budget, it is also likely that taxes on diesel would be made modvatable. Till date, the government has lost revenue to the tune of Rs 2,000 crore to Rs 2,500 crore annually due to the adulteration of diesel, sources added. Diesel sales are also being affected due to the adulteration. In fact, the diesel sales are affected to the tune of 40 per cent of the total diesel sale in the country, data from the petroleum ministry showed.