Government proposes uniform cap of 12.5% tax on ATF as an intermediate measure

New Delhi: In an attempt to break the impasse over the reduction of sales tax on aviation turbine fuel (ATF), the ministry of civil aviation (MoCA) may have proposed to the State governments the capping of sales tax across the country at a uniform level of 12.5% at an upper level. It hopes that the latest offer would serve twin purposes, that of reducing the burden arising from the loss of revenues for State governments, as well providing some relief for struggling airlines.

The offer to bring tax on ATF down to 12.5% level on the upper side has been proposed as an intermediate measure, however. The offer was made at a meeting of an empowered committee of State finance ministers held early on this month.

The state finance ministers, in turn, have posed a few queries to the MoCA, including the total amount that ATF accounts for in a domestic airline's operating cost as well as the other components that make up the domestic air carrier's overall operating cost? Officials said a related query asks for information related to the rise of ATF in the operating cost as compared to the rise in the cost of other components as well.

Indian carriers have argued consistently that ATF contributes 40- 45% of the total operating cost of an airline in India as against a figure of around 20% for an international carrier.