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India Aviation Minister In VAT Policy Plea

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

10 September 2013


Indian states have been encouraged to lower the rate of value-added tax (VAT) they levy on aviation turbine fuel (ATF) to four percent to prop up the nation's debt-saddled airlines.

Addressing representatives from several states at a recent gathering to discuss the future of India's aviation sector, Civil Aviation Minister Ajit Singh pointed out that ATF constitutes nearly half of airline's operating cost. Due to the imposition of provincial value-added tax, at rates as high as 30 percent, fuel is considerably more expensive than in other territories, damaging Indian airlines' competitiveness, he said.

Competition between states to secure airlines' refueling business has increased dramatically lately, however, with prices falling as a result. Goa became the fifth state to lower its VAT rate on ATF from 22 percent to 12.5 percent in early September. Singh pointed out that with some states levying a rate as low as four percent, airlines will avoid refueling in states with high VAT rates. In Chhattisgarh, ATF business increased six fold, he pointed out, following the imposition of a four percent rate in November 2010.

He suggested that the revenue impact of lowering VAT on ATF would be negligible, and challenged the treatment of the aviation sector as a cash cow, with air travel long-considered by policy makers to be the preserve of the wealthy.

The benefits of lower fuel costs for Indian airlines would have a marked impact on their profitability, he argued, highlighting that domestic airlines posted losses of INR97.7bn (USD1.5bn) in the last fiscal year 2012/13, bringing Indian industry debt to INR859bn. "Though the reduction of VAT on ATF to four percent does not amount to a significant loss of revenue to the states, it makes a major impact on the operating costs of airlines and, therefore, on air fares," he urged.

TAGS: VAT rates | tax | business | value added tax (VAT) | India | aviation

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