The Commerce Ministry has asked its finance counterpart to urge the state governments to reduce sales tax on jet fuel to help cash-strapped airlines.
Jet fuel constitutes almost half of an airline's operating costs in the country, compared to 20-25 percent globally, due to high taxes on aviation turbine fuel levied by different states—ranging from 4 percent to 30 percent.
The airlines have been demanding reduction in sales taxes by the state government. In a letter to Finance Secretary R S Gujral, Commerce Secretary S R Rao has asked him to intervene in the matter.
"The Commerce Ministry has asked its finance counterpart to take up the issue with respective state governments to bring down the sales tax on ATF. The move would hugely benefit domestic airlines, which are facing huge credit problem," an official said.
According to the official, there is a difference of 5 percent in sales tax on aviation turbine fuel (ATF) in Mumbai and Delhi. While Delhi has 20 percent sales tax on ATF, Mumbai levies 25 percent and thus the number of airlines refuelling their planes in the national capital now is twice as much as in Mumbai.
"State governments would get benefit in terms of revenue by lowering the taxes as more and more planes would land there. Although the Commerce Ministry has allowed direct import of ATF by the airlines.
Kingfisher has been allowed to import five lakh kilolitres of ATF worth Rs 2,233 crore; SpiceJet 50,000 kilolitres worth Rs 235 crore; IndiGo 7.15 lakh kilolitres worth Rs 3,200 crore, Go Airlines two lakh kilolitres worth Rs 1,200 crore and Air India one lakh kilolitres worth Rs 50.39 crore.