Tougher times may be ahead for the country’s air carriers as States on Saturday refused to prune their rates of sales tax on aviation turbine fuel (ATF), a commodity which alone accounts for more than 40 per cent of the total operational cost of airlines.
According to VAT (value added tax) panel Chairman and West Bengal Finance Minister Asim Dasgupta, the States also rejected the aviation industry’s demand to bring ATF under the ‘declared goods’ category mainly because no State government would then be able to levy more than four per cent sales tax on the jet fuel.
At present, the sales tax on ATF differs widely from State to State, ranging from a low of four per cent in Andhra Pradesh to a high of anything between 20 per cent and 30 per cent in several other States.
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Speaking to the media after the VAT panel’s meeting on Goods and Services Tax (GST) here, Dr. Dasgupta said: “The mood of States is not to review the [sales tax] rates of ATF now, because we asked some hard data on policy of fixation of pricing of petroleum products. We have not got the response [from the Centre].” In particular, the panel had sought to know from the Centre certain aspects such as how ATF prices are fixed, the share of the fuel in the total operational costs of airlines and the like.
However, having received no response so far, Dr. Dasgupta said that the “consensus of the Empowered Committee of State Finance Ministers is that we do not want this [ATF] to be brought in the declared goods list” and this decision will be conveyed to the Centre “accordingly, duly, [and] appropriately”.
Incidentally, the stand taken by the State finance ministers at the VAT panel meeting on the issue of sales tax rate on ATF has come almost ten days after the setting up of a ministerial group to examine the impact of jet fuel prices on the airlines and suggest measures to cut the operational costs.
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As of now, products that are of importance in inter-State trade or commerce are brought under the category of ‘declared goods’ and the list now includes items such as paddy, rice and other foodgrains, coal, cotton, iron and steel and LPG among fuel products. As for ATF, the fuel enjoys declared goods status when utilised for turbo-prop aircraft meant for short-haul.
Among other factors, high ATF prices owing to the steep sales tax levied on the fuel by various State governments is one of the prime afflictions of the aviation sector, especially because the share of ATF in the operational cost of airlines is much higher than the global average of 20-25 per cent.
While the average price of ATF in the entire Asian region as also London and New York is pegged at about Rs. 24,000-26,000 a kilolitre, its price in Andhra Pradesh stands at about Rs. 34,000-35,000 a kilolitre.
‘States also reject aviation industry’s demand to bring ATF under ‘declared goods category’