After receiving little respite from state-owned oil companies on aviation fuel prices and Friday’s Union Budget on a tax on lease payments, airlines in India now plan to lobby hard at least six state governments to reduce sales tax levied on fuel in an effort to cut their operating costs. States apply sales tax at rates ranging from 20-30% on jet fuel, making it an expensive commodity for airlines who count fuel expenses around a third of their operating cost.As oil prices have escalated in the past few years, losses at domestic airlines are expected to top $700 million (Rs2,821 crore) compared with the Rs2,000 crore lost last year. “We were expecting a lot from the Budget in terms of fuel being made a declared good, and (exemptions on) fringe benefit tax,” said S.
Venkat, executive director (finance), National Aviation Co. of India Ltd that runs Air India.
“It’s quite disappointing that there is nothing contained there.” Late last year, the Federation of Indian Airlines, a lobby organization for all scheduled airlines in the country, together with the civil aviation ministry, had sought a reduction in aviation turbine fuel prices from oil companies, but with little result.
The fuel today costs about Rs47,050 per kilolitre in New Delhi, down from some Rs47,445 in December, the highest in 2007. Even minor reductions, airlines say, can lessen the burden on them.
Chennai-based Paramount Airways India Ltd that runs a five-aircraft operation, for example, saves up to Rs5 crore a month because it flies smaller aircraft, fuel for which attracts a flat 4% sales tax. Air India alone will save Rs30 crore annually from this year after an exemption granted by the Andhra Pradesh government—the only one so far—last month on jet fuel.
Sales tax on aviation fuel sold in the state was reduced from 33% to 4% as the state geared up for the launch of its new international airport in March. The state hopes the airport will help it become a regional hub for air traffic in south India.
But taxes in other states still remain high. Kerala, Tamil Nadu, Karnataka, Gujarat, Maharashtra and New Delhi are the other six states that have airports with potential of becoming hubs for airlinesand will be obvious lobbying targets as state annual budgets are rolled out in the months ahead.
“States also go for their budget soon. We hope Andhra Pradesh will spur others to look at it (a reduction),” said a senior airline executive, who did not wished himself or his employer to be identified.
Airlines believe sales taxes hovering around 4-5% will increase traffic in states that offer this lower rate. “Airlines would like to develop them (airports) as hubs and then operate most of their flights there.
There are several indirect benefits as the volumes rise,” said Air India’s Venkat. A senior official in the civil aviation ministry, who did not wish to be identified, said it too plans to ask states to reduce taxes.
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