Aviation Ministry pitches for 4% tax on jet fuel in six metro airports

New Delhi, June 4:

The Ministry of Civil Aviation estimates that a uniform four per cent sales tax on aviation fuel at the six metro airports will generate economic benefit of over Rs 40,000 crore and more than offset the Rs 1,500-crore annual loss to the exchequer.

In a recent report, the Ministry estimates that rationalisation of sales tax at four per cent will lead to creation of between 20,000 and 30,000 jobs which could have an economic impact of Rs 700-1,000 crore a year.

In addition, the improved share of Indian carriers in India's international traffic is likely to result in increase of revenues of up to Rs 12,000 crore annually.

At the moment the sales tax on ATF varies from four per cent to 30 per cent across the country.

“While reducing the base price would be difficult at this juncture, a uniform four per cent sales tax across all States can be achieved by giving ATF a ‘declared goods' status. This will help in reducing the impact of high aviation fuel price. This suggested revision in the taxation policy will reduce the accrual of taxes to the respective State exchequer. However, there would be significant benefits of this policy to the regional and local economies, as well as to the overall Indian economy,” the paper states.

It further argues that a reduction in sales tax would lead to reduction in fares and also enhance the financial strength of Indian carriers.

“This would generate substantial economic benefit to the region and the industry as a whole in the long run,” the paper points out.

With fuel accounting for 40 per cent of the total operating cost for Indian carriers, a reduction in sales tax from an average of 20 per cent to uniform four per cent will bring down the fuel cost for domestic flights by around 13 per cent, the paper estimates.

“Assuming that airlines pass on the full benefit of this reduction in cost to passengers, domestic air fares will come down by six per cent (since fuel accounts for 40 per cent of the total operating cost). Using price elasticity studies of air travel demand, it is established that a six per cent drop in airfare will lead to a 5-8 per cent increase in air traffic for domestic airlines,” the paper estimates.

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