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The Civil Aviation Ministry is using its persuasive skills to convince the States to rationalise Value Added Tax (VAT) rates on Aviation Turbine Fuel (ATF) in the range of 1-4 per cent.
Considering the financial situation of the airlines, the Ministry has initiated dialogue with States to highlight how rationalisation will benefit all stakeholders. According to the Ministry, States earn, on an average, just ₹2,500-3,000 crore each through VAT, which is miniscule when it comes to revenue collections through other modes, but has an adverse impact on airlines as fuel expense is up to 50 per cent of total operation cost.
The Ministry argued that, initially, there may be lesser revenue, but in course of time, increased economic activities will offset the loss in a big way.
Making a strong case for the VAT rate rationalisation, Civil Aviation Minister, Jyotiraditya M Scindia, has written to Chief Ministers of States on the issue. In one such letter seen by BusinessLine , he argued, “States such as Kerala, Andhra Pradesh, Meghalaya, Nagaland, Sikkim and Telangana have brought down VAT to 1 per cent and even below. As a result, they have seen a substantial jump in the number of aircraft movement.”
The letter also highlighted the increase in flights to 23,566 from 21,516 within six months in Kerala. Similarly, post reduction, Hyderabad saw an increase in flights to 86,842 from 76,954.
“It is not easy. We will keep pursuing and trying to explain to them why rationalising the rates makes not only business sense, but also revenue flow will be constant and good for the States in the long-term,” a senior official said.
Excise duty on ATF
ATF supplied to domestic airlines attracts central excise duty of 11 per cent, while it is 2 per cent for scheduled commuter airlines from the regional connectivity scheme airports. ATF sold to foreign-owned airlines and Indian airlines operating in international sectors is exempted from the duty.
What complicates the issue further is that VAT rates vary even within a State.
For example, in Tamil Nadu, VAT on ATF for the Tiruchi airport is 5 per cent, while it is 29 per cent for all other airports. In Maharashtra, VAT on ATF is 25 per cent in Mumbai and Pune but 5 per cent in other airports. In Gujarat, the rate is 30 per cent for all airports, barring Rajkot where it is 5 per cent. In Madhya Pradesh, VAT on ATF for Jabalpur, Gwalior and Khajurao airports is 4 per cent, while it is 25 per cent for all others airports. In Uttar Pradesh, VAT on ATF for Varanasi and Agra airports is 4 per cent, but 21 per cent for others.
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