Telangana, AP mull reduction in aviation turbine fuel taxes

Ashwini Phadnis Amit Mitra New Delhi/Hyderabad | Updated on November 25, 2017 Published on August 21, 2014

Industry players say that ATF constitutes 40-50 per cent of the operatingcost of domestic carriers.

Move will save about 10 per cent of airlines' operating cost, says GMR

Reduction in aviation turbine fuel tax is one measure that both Andhra Pradesh and Telangana Governments are weighing to propel growth in aviation and related sectors in their respective States.

The AP Government plans to reduce the tax on aviation turbine fuel lifted in the State from 16 per cent to 2 per cent, Ashok Gajapathi Raju, the Union Civil Aviation Minister, has said. Competitively, the Telangana Government has plans to bring it down to four per cent.

“I had a chat with the Andhra Pradesh Chief Minister, who mentioned that he would like to reduce it to 2 per cent. The Chhattisgarh Chief Minister mentioned that he had lowered it to 5 per cent. The national average is working out to be 28-29 per cent, which is high. If these things happen (lowering of tax on ATF), it will boost the aviation sector,” the Minister told Business Line.

Past instance

Incidentally, this is not the first time that Naidu has resorted to lowering tax on ATF. Back in the late 1990’s as CM of undivided AP, he had lowered the tax to 4 per cent.

Industry players say that ATF constitutes between 40-50 per cent of the operating cost of domestic carriers. On an average, domestic ATF prices are about 70 per cent higher than international benchmarks, with the VAT on the fuel ranging from 4 per cent to 30 per cent in different States. The high tax on ATF has affected operations of most domestic airlines. Recently, States such as Gujarat, Madhya Pradesh and Odisha have cut value added tax on ATF to four per cent, while Karnataka is in the process of reducing the tax to improve air connectivity and push growth in other sectors.

“Reduction in VAT on ATF from 16 to four per cent will lead to about 10 per cent savings in the airlines operating cost,” according to the GMR Group, which operates the Hyderabad airport.

Cost-benefit analysis

Telangana is estimated to generate revenues of ₹150 crore on the current VAT tax on ATF consumption, which is about 1.70 lakh kilolitres annually. The revenue loss on account of reducing VAT to four per cent will be about ₹110 crore. “But this will bring in additional carriers and result in additional passengers of five million in five years. The direct benefit would be ₹600 crore in five years,” GMR Group said in a recent report.

Published on August 21, 2014
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