New Delhi: The tax regime on Air Turbine Fuel needs to be rationalised as the viability of airline operations in the country has come under pressure due to rising ATF costs and weak rupee, Economic Survey said on Wednesday.
"There is need to rationalise the tax regime particularly value added tax on ATF which is in the range of 20-30 percent in most of the states," the Survey said.
It further said that "a high operating cost environment owing to high and rising cost of ATF coupled with rupee depreciation is making operations unviable for carriers in India."
Quoting the conclusions of a report from an independent consultant, the Survey said fuel prices for the airlines in the country are higher by "at least 40 percent" than in competing hubs in the region such as Singapore, Hong Kong, and Dubai and this needs to be rationalised.
"The Ministry of Civil Aviation is of the view that ATF should be included under the declared category of goods under the relevant provision of the Central Sales Tax Act so that a uniform levy of 5 percent is achieved," it added.
Seeking a transparent pricing regime for ATF in the country, the Survey said: "A high tax regime for aviation in general and ATF in particular will reduce the wider economic benefits available from aviation, resulting in a negative impact on economic growth and overall government revenue bases".
Cost on ATF constitutes more than 40 percent of total costs of airline companies in India.
Last year, the government had allowed four airlines -- SpiceJet, IndiGo, Air India and now closed Kingfisher Airlines -- to directly import ATF.
This meant that the airline carriers, importing ATF, will not have to pay sales tax, which varies between 4 and 32 percent in different states. This was estimated to save total cost by 5-8 percent.
However, the plan is yet to take off due to high costs involved in setting up infrastructure for importing the fuel and lack of support from the oil companies.
Talking about the aviation sector in general, the Survey said that out of Rs 65,000 crore investment envisaged at Indian airports during the Twelfth Five Year Plan, Rs 50,000 crore is expected from the private sector.
It added that domestic passenger traffic and cargo throughput at Indian airports has declined marginally during January-November 2012, at 106 million and at 2.03 million tonnes (MT) respectively.