A long pending proposal to notify Aviation Turbine Fuel (ATF) in the declared goods category, if taken up in the coming Union Budget, could further bring down airfares as well as helping loss making airlines improve their financial health.
The government has been thinking on these lines but has been facing resistance from state governments, who would lose sales tax revenue levied on ATF.
This levy is, on an average 28 per cent, causing a huge burden on airlines whose fuel cost accounts for nearly 50 per cent of their operating cost.
Though the government, in the last budget, allowed airlines to import ATF directly, it has remained a non-starter due to lack of appropriate infrastructure.
ATF, if accepted as a declared good, would attract only 4 per cent sales tax and this would be a huge saving for the airlines, which could pass on a portion of this benefit to passengers.
“We expect ATF to be notified as a ‘declared good’ with uniform 4 per cent sales tax all over the country,” said Amber Dubey, partner and head-aviation, KPMG.
“Rising cost of aviation fuel is one of the major challenges faced by industry. The cost of fuel accounts for nearly 45 per cent of the total operating cost. Sales tax levied by state governments is a major reason for hike in fuel prices,” said Ankur Bhatia, Executive Director, Bird Group.
“In a declared good scenario, states will have no power to levy sales tax. Only a central tax of 4 per cent will be imposed on ATF. With this, fares can be brought down,” an airline executive said, asking not to be identified.
“As per estimates, domestic airlines spend about $4 billion annually towards their fuel bill. If ATF is notified as a declared good, there will be a saving of at least 20 per cent on fuel which is $800 million or Rs. 4400 crore,” the executive added.
According to KPMG, the government should address infrastructural concerns to help the aviation industry grow on solid foundation.
Keywords: Aviation Turbine Fuel, declared goods category, Union budget, Budget 2013, aviation sector
This call should be rejected unless all fuels- petrol, diesel and
others are also given the same status. How can one justify handing
out concession to air travel when crores of people using petrol and
diesel are also subject to high sales tax. There is no case for the
tax for aviation fuel to less than that for petrol and diesel.
This is short sighted and self-defeating policy to impose punishing
fuel tax on the airlines, relics of a failed socialist era when air
travel was considered to be the purview of rich and famous only. Today
air travel is availed largely by middle class and become a necessity
for timely and efficient way to travel necessary in a globalized
business environment. When India's airlines are ailing and the dream
of cheap air travel for the masses in dying a slow death it is high
time that the govt tosses out this antiquated tax policy that is
impeding lower cost air travel and healthy airline business in the
country. I hope the finance minister will do the right thing
notwithstanding state govt protests.
Another example of corporations milking out taxpayers' money. Why should
the state governments face revenue loss if the airlines are not able to
earn profit? Shouldn't the airlines have thought before ordering
billions of dollars worth of aircraft and taking huge debts? They
expanded at extremely fast rates, more than the market would permit, and
now when they see they people are not willing to give enough money as
airfare for them to remain profitable, the airlines want the government
to deduct tax.
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