ATF tax shock for airlines – State FMs threaten to roll back cuts

New Delhi: Far from reducing sales tax on aviation turbine fuel (ATF), State governments now appear poised to withdraw concessions offered earlier, as in the case of Andhra Pradesh and Kerala, or rationalise them marginally, as in the case of those States which have their rates pegged at very high levels. Conveying its sentiments on the issue to the ministry of civil aviation (MCA), at a meeting held in New Delhi on Monday, an empowered committee of State Finance ministers has questioned the decision of airlines not to pass the benefits of reduced taxes on to passengers.

The ministry had taken the initiative to convene a meeting of State finance ministers in an attempt to convince them to reduce  the high level of taxes slapped on ATF. Now, States like Kerala, which had recently reduced the tax rate from 28.5 per cent to 4 per cent, have decided to roll back the cut saying that the benefit is not being passed on to customers as promised. "We had decreased the tax rate primarily because Andhra (Pradesh) did it and we did not want any diversion of flights there. But we find that nothing has been done by airlines to pass on the benefit to the customers. We are, therefore, reversing our stand and plan to increase the tax rate. We are looking at a figure of 20 per cent," said Kerala finance minister Thomas Isaac.

"All state governments agreed on this. We also decided that instead of letting the Centre play states against each other and have different tax rates, we should have a common tax rate for ATF. It will definitely be more than 12.5 per cent. But we will have to see if other states agree on 20 per cent," he added.

Andhra Pradesh, Maharashtra and Rajasthan are the other States that have reduced sales tax on ATF to 4 per cent, though with varying provisions.

According to West Bengal finance minister, Asim Dasgupta, who is also chairman of the empowered committee, a final decision would be taken at another meeting in Srinagar on 21-23 June. "We have asked the civil aviation ministry for more information on ATF," said Dasgupta.

Queried about the prevailing sentiment amongst the States regarding a roll back on tax benefits, civil aviation secretary, Ashok Chawla, said: "In our last meeting, we had asked state governments to decrease sales tax on ATF to 12.5 per cent but given the current situation, even that relief is not enough. The situation is such that if they are not given relief, airlines will have to increase fares further. Passing benefits on to the customers at this stage is, therefore, out of question."

The price of ATF has more than doubled over the last three years. Consumption in India has increased to nearly 4.5 million tonnes (mt) in 2007-08 from 2.81 mt in 2004-05. Domestic flights have  increased from around 6,500 per week to around 11,000 in the same period.