State mulls ATF tax cut to 1% as airfares surge

Officials said the state already has a lower tax structure at smaller airports, it has 1% under the UDAN regional connectivity scheme and 5% elsewhere, but a blanket cut would significantly impact finances

Mumbai: The state government is considering a sharp cut in Value Added Tax (VAT) on aviation turbine fuel (ATF) to 1% from 18% at key airports, following a request from the Centre to ease rising airfares and support airlines. The move might cost the state exchequer nearly ₹1,000 crore annual revenue loss.

State mulls ATF tax cut to 1% following a request from the Centre to ease rising airfares and support airlines.

The proposal follows the Centre’s push for a temporary 3 to 6 month reduction in states with high ATF taxes, as geopolitical tensions drive up ticket prices. Maharashtra, which currently levies 18% VAT at major airports, is among four states under focus, along with Tamil Nadu, (29%), West Bengal (25%) and Delhi (20%).

Officials said the state already has a lower tax structure at smaller airports, it has 1% under the UDAN regional connectivity scheme and 5% elsewhere, but a blanket cut would significantly impact finances.

“If we decide to reduce it to 1%, the financial burden on the exchequer would be ₹1000 crore. It would be a political decision to be taken by the police leadership,” said an official from the finance department.

Competition from neighbouring states is also a factor. Gujarat and Goa have reduced VAT to 1% and 8%, prompting concerns that airlines could prefer the neighbouring states for refuelling operations. Maharashtra had reduced ATF VAT from 25% to 18% in 2023 to remain competitive, but further cuts may now be needed as more states lower taxes to attract aviation traffic.