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Indian Aviation Taxes To Be Slashed

by Mary Swire,, Hong Kong

08 June 2012

India's Civil Aviation Ministry has announced plans to significantly reduce taxation on the nation's ailing aviation industry to support its sustainability, amid the accumulation of massive debts by operators.

Presently, regional authorities levy Aviation Turbine Fuel (ATF) tax on airlines at an average rate of 25%, with the burden reaching as high as 30% in some states. Under the proposal, ATF tax would be limited to 4%, significantly cutting airlines' operating costs, of which almost half are fuel-related.

Meanwhile, service tax applicable on fares would be revoked to provide a further boost to the industry. Presently India levies a 10.3% service tax on international economy fares, or a flat INR773 (USD14) charge, whichever is lower.

The contribution of aviation to the nation's gross domestic product (GDP) is meager and far below its potential, at just 0.5% of GDP. If introduced, the significantly reduced tax burden would go a long way to assisting Indian operators, some teetering on the brink of bankruptcy, to establish profitable operations, and work with the government to grow the sector.

In a report from a working group appointed by the Indian Planning Commission in February, the sector was observed as having 'major growth potential', with India's domestic traffic five times smaller than China despite China having a population just 10% larger. India's passenger handling capacity has already risen three-fold from 72 million to 233 million from the fiscal year 2006 to fiscal 2011, and the number of passengers serviced by Indian airports in recent years has seen an annual growth rate of over 11%. Cargo handling capacity has also risen markedly from 0.5 million MT (2006) to 3.3 million MT (2011).

However, the message that emerged from the report was that government tax policy has to date stymied growth, and has failed to recognize the benefit aviation can provide for the country's rapid economic development.

TAGS: tax | India | aviation | tax rates

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