Airlines are re-emphasising the need to classify jet fuel as a ?declared good? to help ease their tax burden, as rising fuel prices threaten to derail a fledgling recovery in the sector. As a declared good, aviation turbine fuel (ATF) would be taxed at 4% across the country. At present, state taxes range from 4% to 30%.
ATF prices were raised 7.6% recently, the largest-ever increase in absolute numbers, as international oil prices rose and the rupee remained weak versus the US dollar.
The spectre of further price hikes looms large, with oil companies demanding a hike in prices of various petroleum products, including petrol, diesel and cooking gas, to lower their subsidy burden. The union minister for petroleum and natural gas, S Jaipal Reddy, has however, ruled out an immediate price hike.
To counter the price hike, airlines this week raised the fuel surcharge by R150 to R250 on domestic routes and R825 on international routes, making travel costlier.
Naresh Goyal-promoted Jet Airways and media baron Kalanithi Maran-promoted SpiceJet reported slim profits in the first quarter of the 2012-13 fiscal after five straight quarters of losses.
?The increase in fuel surcharge is just to break even and counter the last increase in ATF prices,? said a senior Jet Airways official. ?If we didn?t increase the price, we would have slipped back into the red.?
Dinesh Keskar, senior vice president sales (Asia Pacific & India), with jet maker Boeing, agreed that airlines would have gone back to losing money if they hadn’t raised prices.
?The revival in the industry is still too premature and we would have to wait for a quarter or two to see if the return to profitability is a sustainable trend,? he added.
Experts reckon a reform in the tax structure of ATF should be a priority for the central and state governments. ?Reducing taxation on ATF and making it a ?declared good? is the only way to start reforms in the Indian aviation sector,? said Saroj Datta, former executive director at Jet Airways.
?Until the cost structure, including fuel cost, of the aviation business in India becomes sustainable, no foreign airline would want to invest,? he said. Infrastructure bottlenecks have thwarted the central government?s attempts to help airlines by allowing direct ATF imports earlier this year.
?Direct import of ATF is not practical and the central government should consider compensating states to get them on board for rationalising the tax,? said Kapil Kaul, CEO – Indian subcontinent and Middle East, at aviation consultancy firm Centre for Asia Pacific Aviation or CAPA.
ATF is one of the primary sources of revenue for state governments, who, in the past, have opposed attempts by the central government to classify the fuel as a ‘declared good.’ However, the Maharashtra government recently indicated that it is open to reducing the tax on ATF to boost sales.
?We need to reduce tax on aviation turbine fuel to at least to what other major destinations like Delhi (have),? said Maharashtra chief minister Prithviraj Chavan last weekend. ?I will be able to give you good news on that very soon.?
Before tax, HPCL sells jet fuel for R60,234.93 per kilolitre (KL) at New Delhi’s T3 Terminal, higher than the R58,264.51/KL it charges at Mumbai’s Santacruz airport.
However, Delhi levies a 20% sales tax on ATF, whereas Mumbai charges 25%, making fuelling roughly R530/KL cheaper for airliners in the capital.
