Aviation ministry proposes 4% sales tax on ATF

In what could be a much-needed relief for India's ailing civil aviation sector, the government is toying with a series of measures to boost the industry's fortunes, including slashing sales tax on aviation turbine fuel.

The ministry of civil aviation has proposed that state governments bring down the sales tax on aviation fuel to a uniform four per cent. Fuel costs add up to a whopping 40 per cent of the total expenditure of Indian carriers, more than double the global average. Some states impose a hefty 30 per cent sales tax on aviation fuel.

''Reduction in the fuel tax would allow Indian carriers to become competitive in servicing passengers to their respective hubs within India and compete with international carriers,'' said the ministry in a consultation paper. ''This advantage would allow them to increase their market share.''

Other proposals suggested by the ministry include abolition of service tax on air tickets, which contributes to making air travel a luxury, it argues. Service tax, including fuel charge, adds up to Rs773 or 10.3 per cent of the total fare, which is lower, for an economy ticket on international routes.

Of course, the ministry's proposals are unlikely to be accepted by most state governments, especially Maharashtra and Delhi, home to two of the country's busiest airports, Mumbai and Delhi.

The civil aviation ministry feels that the policy change suggested by it could result in gains of Rs45,000 crore for the civil aviation sector; this would outweigh the revenue loss to the exchequer of about Rs3,750 crore.