India mulls slashing ethanol taxes in bold bid to reduce fast-rising fuel costs

In India, the central government is reportedly considering the imposition of a 4 percent uniform tax on ethanol, at the state level, and reducing the federal tax from its current level of 16 percent.

At present, taxes differ from state to state, and state-level taxes are as high as 20 percent.

The move is intended to stimulate the use of ethanol and thereby reduce dependence on foreign oil and reduce the spread between the cost of domestic and imported ethanol. Currently, domestic ethanol costs $2.68 per gallon while imported ethanol costs $2.00 per gallon.

In November, the Economic Times reported that the central government planned to slash taxes on ethanol as an incentive to stimulate demand. The proposal on the table would have eliminated all inter-state taxes and duties.

The E10 mandate scheduled for October 2008 has been championed by the Agricultural ministry as a means of handling the nation’s severe sugar overproduction. India is projected to have a surplus of 11.5 million tonnes, based on a projected 33.15 million tonnes harvest this year, which would be a world record for national sugar production. Recently, 10 sugar-producing states have agreed to a framework for a national E10 mandate. India’s sugar crop this year is expected to exceed 29 million metric tons. With domestic consumption at 19 million tons and exports at 1.5 million tons, the country is turning to ethanol production to avoid a catastrophic sugar glut.

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