Direct jet fuel imports: states will lose Rs 3k cr in sales tax

Indian states could lose sales tax revenues totalling Rs 3,000 crore if the central government’s proposal to allow airlines to directly import jet fuel is implemented, a report in Hindu Business Line said.

Don’t expect states to take this loss lying down.The rate of sales tax on jet fuel varies across different states - between 4 percent and 30 percent. To compensate for this loss in revenues, some states like Karnataka and Andhra Pradesh might introduce an “entry” tax, an HSBC report said recently.

[caption id=“attachment_209789” align=“alignleft” width=“380” caption=“Ministers are expected to meet this month or early next month to discuss the consequences of the loss in sales tax. Reuters”] [/caption]

Ministers are expected to meet this month or early next month to discuss the consequences of the loss in sales tax.

We’ve already said that direct fuel imports are easier said than done.

The infrastructure to import and transfer fuel across the country is the biggest problem for airlines. The companies that do have the infrastructure are the oil marketing companies.

It remains to be seen how willing oil marketing companies will be to help airlines import their own fuel, because it will, after all, affect the business of oil marketing companies themselves, who are currently the main suppliers of jet fuel to airlines.

Some media reports have said that Reliance Industries, which sells jet fuel, will be one of the biggest beneficiaries of the government’s proposal to allow direct jet fuel imports.

However, BPCL Chairman R K Singh has pointed out that even Reliance Industries will not be able to help aviation companies completely as it does not have pipelines to transfer fuel across the country.

The HSBC report also said that jet fuel requires strict monitoring of quality at every stage of transfer and use, for which there is no option but to rope in the oil marketing companies. In addition, oil companies might also have to maintain separate inventories of imported fuel and domestically-produced fuel because of tax policies, which is quite unfeasible.

In short, relief for aviation companies is still nowhere in sight!