States won't reduce VAT on jet fuel, airlines' operating costs to remain high

New Delhi: The Centre has been looking for an increased role of state governments to make aviation more accessible and affordable for the common man. The Ministry of Civil Aviation has proposed a slew of measures in the draft civil aviation policy to get states’ participation so that India’s hinterland also comes on the aviation map. A senior official of the ministry says some states have written seeking more details of the ambitious Regional Connectivity Scheme (RCS) where they also need to chip in.[caption id=“attachment_2453186” align=“alignleft” width=“380”]  Minister of State for Civil Aviation Mahesh Sharma. PTI[/caption] But another area of critical importance to the airline industry where states have a significant role to play is in reducing overall taxation on aviation turbine fuel (ATF). Here at least, most states have decided not to cooperate. Minister of State for Civil Aviation Mahesh Sharma told Lok Sabha in a written reply today that states have rejected the ministry’s proposal for inclusion of jet fuel under ‘Declared Goods’ category. The inclusion would have reduced the price of ATF significantly and thereby helped India’s loss laden airlines. India holds the dubious distinction of being one of the countries with highest incidence of taxation on ATF – at present, fuel costs account for 45-50 percent of an airline’s operational costs. Sharma said the Empowered Committee of State Finance Ministers has not agreed to the proposal for including ATF in the Declared Goods category. Under this category, the items cannot be taxed more than four per cent by a state when taxation now ranges from 4-30 percent. The civil aviation ministry had taken up the issue of including ATF in the Declared Goods category with the finance ministry. Besides, senior Aviation Minister A Gajapathi Raju had written to each state chief minister seeking a reduction on taxation on ATF. Some states complied and ministry officials say those states have already seen increased connectivity with airlines coming forward with additional flights. Sharma said the Empowered Committee of State Finance Ministers “unanimously agreed by the states that ATF should not be notified as Declared Goods”. The Value Added Tax (VAT) on the fuel is up to 30 percent and the civil aviation ministry has been requesting state governments to reduce the tax on ATF to “make airline operations commercially viable”. “Some of the states like Odisha, Jharkhand, Madhya Pradesh, Andaman and Nicobar, Chattisgarh, Andhra Pradesh, Telangana and Punjab have responded positively and reduced VAT on ATF to 5 percent or less. Some other states like Maharashtra, West Bengal and Rajasthan have selectively reduced the VAT on ATF,” the minister said. Let us hope the proposal for increased regional connectivity, which requires active participation by states and also requires state governments to bear some part of the cost burden, does not meet a similar fate.