Domestic aircraft operators pay over eight times higher taxes on aviation turbine fuel (ATF). The fuel used by jetliners is loaded with various tax levies, as a result of which domestic airlines pay a total of 66-per cent tax on ATF, compared with the 8 per cent paid by international airlines that fill ATF in India.
This erodes their profitability by an average of 10.5 per cent per annum for full service airlines, to as much as 15 per cent per annum for low cost carriers, says industry association Associated Chambers of Commerce and Industry of India (Assocham).
An Assocham paper, titled 'Implications of Higher Tax Incidences on ATF for Domestic Flyers' highlights the fact that fuel is the largest component of operating expenses for airlines, accounting for almost 35 per cent 40 per cent of the total costs.
Higher tax incidence on ATF for domestic carriers includes sales tax, central excise, import duty and education cess. Assocham president Venugopal Dhoot has stated that if the government reduces sales tax on ATF by about 10 per cent and customs duties by 4 to 5 per cent, the domestic aircraft industry can save about $1.25 billion in annual revenues. The savings can be utilised for building airport infrastructure.
Assocham has pointed out that the aviation industry is impacted adversely by the multilayered indirect tax system, which includes value added tax (VAT), service tax, excise duties and customs duties.
The impact of indirect taxes is not uniform and there is a substantial variation in tax treatment under various legislations for different types of aircraft, which needs to be corrected and rationalised, Dhoot suggested.
The association forecasts that air travel in India will double in five years and triple in nine years. Domestic traffic has risen by 19 per cent each year since 2002, and international traffic has grown by 13.7 per cent a year on average.