Air travel to smaller airports is likely to get cheaper as the Delhi government proposed to cut value added tax (VAT) on aircraft turbine fuel (ATF) to 1% from the existing rate of 25% in the budget presented on Wednesday.
The move will save ₹12,000-₹13,000 per kilolitre for airlines. Ticket prices are decided on the basis of fuel price. “Planes that fly directly from Delhi to remote areas can get tax benefit on ATF. This will result in reduction of air fares,” chief minister Arvind Kejriwal said soon after the budget was tabled in the Delhi Assembly on Wednesday.
The Delhi government reduced VAT on ATF by 24% as part of the Central government’s regional connectivity scheme.
It said airlines flying directly to airports that are part of the scheme, especially those to the Northeast, will benefit from the move. In his budget speech, finance minister Sisodia said companies that have opted to operate under the regional connectivity scheme — RCS (Udan) — will get the benefit.
“For operators that will ply the fights on RCS routes (involving Delhi) between an identified pair of origin and destination airports/helipads within India pursuant to the scheme satisfying the prescribed conditions, the government has proposed to reduce the VAT rate to 1% from existing 25% on their purchases of air turbine fuel (ATF) in Delhi,” Sisodia said in his budget speech.
Under the regional connectivity scheme, it was mandatory for states that have underdeveloped airports to reduce VAT to 1%. “Delhi was not part of the RCS scheme but it has proactively reduced the VAT rates, which means smaller airports can get connected with Delhi,” said an official of the ministry of civil aviation.
With the announcement, aviation stocks jumped by 3-5.5%. Indigo was up 1.7%, while Jet Airways gained 2.4% and SpiceJet 2.9%.
“This is a welcome move, which will help reduce costs and bring down fares for flights to smaller airports in the country. We support all initiatives that help reduce fares for our consumers,” said Ajay Singh, CMD, SpiceJet.
Indigo demanded similar tax benefits for other routes.
“I understand this relief is only for the regional connectivity routes. We request that this tax break is broadened to all air travel out of Delhi as it will allow IndiGo to provide even more affordable air travel to millions of our customers out of Delhi which is our biggest base of airplanes,” said Aditya Ghosh, president and whole-time director, IndiGo.