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High Taxes Killing Domestic Aviation In India

by Mary Swire, Tax-News.com, Hong Kong

22 October 2008


India's Civil Aviation Minister, Praful Patel has this week urged the government to lower the sales taxes on aviation turbine fuel (ATF), after figures have revealed that domestic air travel has declined dramatically this year.

Rates of ATF vary throughout the country, with some states subjecting it to a colossal 30% levy.

Patel has requested that Indian states follow the lead of Kerala and Andhra Pradesh, which have reduced taxes on ATF to 4%.

The debate on the issue of aviation costs has intensified after figures revealed that the industry is set to suffer a 25% decline in domestic passengers this year, as the effects of the fuel tax increase start to filter through to the public.

The consequences for several of India's biggest air service providers - such as Kingfisher and Jet Airways - have been significant. Both airlines have claimed that the ATF increase has drastically affected the way in which they are run, leaving them short of money to cover operating expenses. This dent in revenue has led to both companies having to raise air fares and consider laying-off staff.

It is now estimated that despite the decline of global crude oil prices, the Indian airline industry will suffer a loss of USD1.5bn by the end of 2008.

To help alleviate the cost burden of its members, the Federation of Indian Aviation, which represents Indian airlines, has asked the Directorate General of Foreign Trade (DGFT) to obtain permission from the petroleum ministry for domestic carriers to import cheaper fuel directly for their own use, thus reducing costs and avoiding state taxes.

It is thought that such a move could save the industry about 25% in fuel costs, a huge margin that could potentially bring the ailing industry back to profitability at a time when many airlines are struggling to come to terms with world economic events.


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