Airliners seek uniform sales tax as fuel prices soar

Written by Shaheen Mansuri | Mumbai, May 18 | Updated: May 20 2008, 03:30am hrs
With oil prices touching an all-time high of $127 a barrel on Friday, airlines in India anticipate inflated fuel bills for May, which will further shrink their margins. Reacting to the high oil prices, the Federation of Indian Airlines (FIA) is planning to appeal to the government to announce jet fuel declared goods so that it attracts a uniform sales tax across the country.

FIA members forecast that the collective fuel bills for the sector is likely to cross $700 million for the current month. Fuel costs comprise 45% of the operating costs for airlines. Since 2005, ATF prices have increased by as much as six times, and currently stands at Rs 57.93 a litre in Mumbai.

Sales tax on jet fuel varies from state to state. Its 29% in Mumbai and 35% in Delhi. In other states, its anything between 25%-35%. The sales tax is rationalised at 4% only in Andhra Pradesh. The FIA now wants the sales tax on jet fuel to be somewhere in the 10% range. Private carrier Jet Airways had a fuel bill of approximately Rs 300 crore for April alone. However, this is likely to go up by over 10% for the current month. Meanwhile, A Raghunathan, chief financial officer at Kingfisher Airlines told FE , "We can get the accurate figures of our fuel bill increase only in the last week of May. We are certainly expecting an increase of 12%-14% compared to April."

GP Gupta, chief financial officer at low cost carrier GoAir explains, "Our fuel bill was Rs 30 crore in April. The bill for this month will escalate by 10%. Going forward, if the trend continues, the airlines will face a grim situation."

Meanwhile, analysts fear if the jet fuel costs continue to escalate, it will make a dent in the profitability of the first quarter of the current fiscal. "Also, the cost of available seat per kilometer (ASKM) has gone up from 20 paise in the corresponding month last year to Re 1 this month due to the ever rising fuel cost."

However, FIA has been drawing the governments attention to ATF prices being nearly 70% to 95% higher in India compared to international prices in the case of fuel uplifted for domestic operations. Even in the case of ATF bought for international operations, Indian carriers pay 30% more.