The ministry is backed by the industry’s argument that sales tax revenue from ATF for a state like Maharashtra is not even one per cent (Rs 10 crore) of a total collection of Rs 1,100 crore.
A reduction in ATF price is significant, as fuel costs comprise 30 to 35 per cent of the total operating cost in domestic operations as against 11 to 15 per cent for international carriers.
During 2000-01, ATF cost added Rs 231 crore to the operating cost of domestic and international flights of Indian Airlines.
If reduced, the airline would be able to reduce fares significantly.
The Committee of secretaries, presided by the Cabinet secretary, will also discuss a proposal to treat aviation turbine (ATF) fuel on import parity price. Sales tax can be capped at 4 per cent by categorising ATF as “declared good” under the Central Sales Tax Act.
Besides the basic price of ATF, levies including the excise, sales tax and transportation, distribution and storage costs makes the final price abnormally high as against the bonded price (outside India).
Sales tax varies from a low of 4 per cent in Andhra Pradesh to 25 per cent in Maharashtra, 36 per cent in Gujarat and 39 per cent in Kerala.
Besides, ATF for domestic operations is also subject to excise duty of 16 per cent.
On international routes, Air India and Indian Airlines have written to the ministry of civil aviation, seeking exemption of sales tax for operating international flights. This leads to discrimination and operating cost advantage vis-a-vis foreign carriers for whom sales tax is exempted.
“Even the bonded price of ATF for international price flights in India is available at a price higher than prevailing in the international market” an Indian Airlines official said.
Indian Airlines would save about Rs 40 crore annually, if there is no sales tax on ATF for its international flights.
The issue of ATF was earlier taken up by the civil aviation ministry which had suggested exemption of sales tax to the finance ministry.
As part of its budgetary demands made earlier this year, the civil aviation ministry had proposed that sales tax on aviation turbine fuel used by domestic airlines be capped at a uniform levy of 4 per cent by categorising it as “declared goods”. But neither proposal was considered by the government.
The aviation industry had proposed that ATF used for international operations uplifted by Air-India and Indian Airlines be exempted from sales tax.