Classifying ATF as ‘declared good’ will sharply reduce tax on the fuel

The Civil Aviation and Petroleum Ministries plan to jointly approach the Finance Ministry to convince it on the need to notify aviation turbine fuel (ATF) as a ‘declared good’.

The proposal’s acceptance will mean that the States will not be able to levy sales tax of more than four per cent on ATF. At present, the sales tax on ATF goes as high as 30 per cent.

The high domestic cost of ATF is one of the major causes for airlines’ being in the red, the industry has repeatedly claimed. ATF accounts for 35-40 per cent of the operating cost of most domestic airlines.

Cartelisation

Meanwhile, at a meeting here on Tuesday the Petroleum Minister, Veerappa Moily, agreed to a proposal to put ATF under the Petroleum and Natural Gas Regulatory Board (PNRGB). This was after Civil Aviation Minister Ajit Singh pointed out that the state-owned oil companies were indulging in cartelisation in ATF pricing.

Placing ATF under PNRGB will mean that the Board can monitor prices and take corrective measures if it feels that cartelisation is taking place.

To support its case the Aviation Ministry pointed out that on October 16 the three state-owned oil companies charged Rs 52,792 for a kilolitre of ATF in Chennai, while in Kolkata they charged Rs 54,479 per kilolitre.

Pricing mechanism

Singh suggested moving to the Mean of Platts Arab Gulf (MoPAG) pricing mechanism for ATF, instead of import parity pricing that OMCs (oil marketing companies) follow at present.

The Civil Aviation Minister felt that MoPAG adoption will bridge the differential in ATF pricing that airlines face while picking up aviation fuel in India and nearby airports such as Singapore, Bangkok and Dubai.

Implementing these measures, Government officials hope to see airlines’ operating costs come down and, thereby, allow them to cut domestic air ticket prices.

Speaking to newspersons after the meeting, Singh said that the Ministry did not regulate domestic airfares.

Ashwini.phadnis@thehindu.co.in

(This article was published on December 4, 2012)
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