The aviation ministry has called for state governments across the country to discuss on a possible mechanism to reduce the tax on aviation turbine fuel (ATF) whose price was hiked by a steep 6.9% last week.
India’s airlines, being extremely sensitive to the price of ATF, were left with no choice but to raise ticket prices on key routes by as much as 40%.
The new proposal aims to align ATF along with the declared goods category that results in a uniform, lower rate of value-added tax (VAT). The aviation ministry officials cited the example of Chhattisgarh where VAT on ATF was reduced to 4% in November 2010. “This resulted in a jump in ATF sales from 100 to 2200 kilolitre per month. The total passenger movement increased from 533,000 in 2010-11 to 8,05,000 in 2011-12,”an aviation ministry official said.
Average ATF prices at Indian airports are significantly higher than those in Singapore, Hong Kong, Dubai, London or Abu Dhabi. As a result, fuel represents an average of 45% of operating costs for India’s airlines, compared to a global average of 32%.
VAT, according to the official, forms a miniscule part (0.5-2%) of a state’s total revenue when levied on ATF and its reduction “will result not only in increased uplift but better connectivity and investment for states.”
{{/usCountry}}VAT, according to the official, forms a miniscule part (0.5-2%) of a state’s total revenue when levied on ATF and its reduction “will result not only in increased uplift but better connectivity and investment for states.”
{{/usCountry}}The meeting between the aviation ministry and state aviation ministers to discuss this issue is slated to happen on September 10.