The ailing airline industry may not get any respite in the form of a sales tax cut on aviation turbine fuel. The state governments are reluctant to bring the fuel under the declared goods status and tax it at a much lower rate of 4%, contrary to civil aviation minister Praful Patel?s proposal.
The decision is likely to further hurt the domestic airline industry, which is already suffering from financial woes and outstanding fuel bills of nearly Rs 900 crore to state-run oil companies. The matter, which has been discussed by the empowered committee of state finance ministers earlier, is expected to be taken up once more in a meeting next month. The airline industry and the civil aviation ministry had earlier made representations to the EC on the issue. However, they could not cut much ice with it.
This is because states are not keen to hand out more fiscal incentives. ?With the onset of the value added tax regime, states have been trying to reduce the tax sops given to industry,? an official familiar with the matter said. If needed, the aviation sector should be given a direct cash subsidy to bail them, states have said. Further, with ATF prices having cooled down in the last few months in the past few months, the EC feels there is not much point in reducing the sales tax on it. Unlike petrol and diesel, ATF is priced at the import parity rates (as if the fuel were to be imported) from 2001, when its pricing was deregulated.
Also, the state governments feel that reducing the sales tax on ATF will not have lead to lower fares and would only benefit the airline industry, he added. Airlines already impose a heavy fuel surcharge on passenger tickets and get adequately compensated.
North Block too is unwilling to impose such a decision on states. ?It is up to them to decide on the issue. They already feel threatened by us and we do not want to push them into anything,? a finance ministry official said. Significantly, civil aviation minister Praful Patel had said earlier this week that ?other ministries? were not co-operating to reduce the price of the fuel although he had recommended it several times.
The ministry of civil aviation has been asking for a reduction of excise duty and sales tax on ATF for a long time. ATF, used by domestic airlines attracts customs duty at 5% and excise duty at 8%, besides education cess. States also levy sales tax on it at rates ranging between from 20% to 30%.