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.