Govt asks states to slash VAT on jet fuel to 4%
New Delhi: With Indian airlines posting a combined loss of about Rs 10,000 crore in 2012-13 and a total debt of almost Rs 90,000 crore, government on Tuesday asked state governments to slash value added tax (VAT) on jet fuel to four per cent and ease a major burden on the industry.
Observing that the prime reason for these losses was high fuel cost which constituted almost 40-50 percent of an airline's total costs, Civil Aviation Minister Ajit Singh said the aviation turbine fuel (ATF) prices were high due to rising base price and "very high VAT imposed by state governments."
Currently, VAT on jet fuel ranges from 4 to 30 percent.
In 2012-13, the airlines posted a combined loss of Rs 9,779 crore and had a total debt of Rs 87,779 crore, official figures presented at the conference of state civil aviation ministers here showed.
Addressing the conference, Singh said while certain states like Chhattisgarh, Jharkhand, Madhya Pradesh and West Bengal have recently reduced VAT, "I thank them and hope others would also oblige."
He gave examples of these states and said lowering of fuel costs would lead more people to take to air travel and considerable spinoffs to the economy, as a consequence.
Lowering of VAT by Chhattisgarh has led to "a six-fold increase in ATF uplift" and brought in more flights to Raipur.
"So my request to you all will be that you should take up with your government to reduce VAT on ATF to four per cent," he said.
On airport development in Tier-II and III cities, he said the government has decided to operate, manage and develop 20 airports across the country, including Chennai and Kolkata, through public-private partnership.
While Requests for Qualification (RFQs) for Chennai and Lucknow have already been issued, RFQs for Kolkata, Jaipur, Ahmedabad and Guwahati "are in the process and will be out this week," the Minister said.
Besides Singh, the day-long conference was attended by Minister of State for Civil Aviation K C Venugopal, top officials of the Ministry and state aviation and transport Ministers and officials.
Maintaining that there was an urgent need to encourage regional connectivity, especially to remote and difficult areas, Singh said, "This is possible only if operational costs of airlines are reduced to minimum."
This could be done with the state governments contributing by bearing some operational expenses like cost of security at airports, providing water, power, fire safety and rescue machinery and building roads to connect the airports.
The Minister said the states could also provide incentives like minimising property tax of airports and under -writing some seats in the flights for some time.
He said the "flawed perception" that aviation belonged to the elite only has resulted in the sector "bearing the cross of high tax regmies and eliciting less sympathy from policy makers."
In his address, Venugopal spoke of providing last-mile connectivity through general aviation and said the Ministry was considering asking non-scheduled operators to frame rules to enable them connect with larger airlines at the regional hubs in major cities.
He also cautioned that public-private partnership at airports "should not drain the passengers' pockets". He also advised state governments to formulate their own civil aviation plans to encourage business and tourism.
Civil Aviation Secretary K N Shrivastava said 100 towns and cities had been identified for creating of "basic airport infrastructure", among which work at 20 would be taken up soon. He said the bill to create a Civil Aviation Authority was likely to be passed by Parliament in the Winter Session.
Making a case for the state governments to reduce VAT on jet fuel to four per cent, Civil Aviation Ministry Joint Secretary Asok Kumar said the states earned only 0.5 to two percent of their total revenue on this count.
"Though the reduction of VAT on ATF to four per cent does not amount to a significant loss of revenue to the states, it makes a major impact on the operating costs of airlines and, therefore, on air fares," he said.
Over the base price fixed by oil marketing companies, excise duty worth 8 percent, education cess of 3 per cent and ad valorem VAT ranging from 0-30 percent were added, he said.
Kumar said the ATF prices in India were 50-60 per cent more than the competing neighbouring hubs. While ATF per kilolitre cost Rs 49,496 in Bangkok, Rs 48,010 in Singapore and Rs 45,450 in Kuwait, it was Rs 80,317 in Kolkata and Rs 76,312 in Chennai.
The aviation sector contributed two per cent of the GDP directly and as spinoffs and employed 11.5 million people in India, the Ministry official said.