New Delhi: In a move aimed at helping the debt-laden airlines bring down their costs, the government on Wednesday formally allowed local airlines to import jet fuel directly.
The airlines would be allowed to import aviation turbine fuel (ATF) under the so-called open-general license, enabling them to avoid sales taxes of between 12 to 23 percent that are levied by state-governments.
“…Indian Carriers who are interested to avail the opportunity to import ATF directly without going through State Trading Enterprises route may apply to the Directorate General of Foreign Trade (DGFT),” an official statement said.
Jet fuel in India exceeds the global average by more than 50 percent mostly due to local taxes. Some estimates suggest that direct imports could cut fuel costs by up to 20 percent, but also require new spending in terms of putting up storage and logistics infrastructure.
Carriers, led by Kingfisher Airlines, had demanded the right to direct import of fuel, which accounts for about half of their operating costs. Airlines, almost all of which are losing money, currently buy ATF from local refiners like Indian Oil Corp. Though the jet is priced at parity with international rates, the actual
price for airlines is higher because of state sales tax.
Industry sources, however, said that importing the fuel will pose its own challenges like storages and logistics involved in moving the product from sea ports to consumptions points at airports. The airlines would have to form tie-ups with the suppliers having infrastructure to import ATF directly for
their use. Sales tax on the fuel varies between 4 and 30 percent from state to state.
This is the second time that the direct ATF imports have been allowed by the government. Earlier in 1995-96, the import of ATF was undertaken on behalf of ATOs (Air Transport Operators) and Airlines against Special Import Licence. While airlines will not have to pay the state sales tax, they would have to pay 12.83 percent duty on the imported ATF (additional customs duty or CVD of 8.24 percent plus a 3 percent education cess on top of it and an additional 4 per cent special CVD or SAD).
Against this, airlines currently pay only 8.24 percent excise duty on jet fuel purchases made from oil firms. Besides, the airline would either have to build its own storage tanks or hire those from oil companies for stocking the imported ATF at the ports. It would then have to make arrangements for transporting ATF to airports in trucks. Sources said that Kingfisher’s requirement of ATF during 2011-12 is estimated at 434,000 tonnes or 33,600 tonnes per month.