Minister of Civil Aviation Jyotiraditya Scindia has written to 22 states and union territories to rationalise the Value Added Tax (VAT) on Aviation Turbine Fuel (ATF). The Minister has asked for VAT to be rationalised within the range of 1 percent to 4 percent.
The price of ATF is a major component of the operating cost of airlines with that, the tax on ATF contributes significantly to the ATF price. Addressing this issue would enable a force multiplier effect with regard to air connectivity in states.
Rationalization of VAT will give an impetus to air travel, which will further have a multiplier effect with regard to air connectivity and economic development noted Scindia.
The Minister cited examples of states such as Kerala that has brought down VAT on ATF from 25percent to 1 percent. Subsequently, the number of aircraft movements at Thiruvananthapuram airport increased from 21,516 flights to 23,566 flights in a span of 6 months ie an increase of 2050 aircraft movements post-reduction of VAT.
Similarly, aircraft movements at Hyderabad saw a rise from 76,954 flights to 86,842 flights in a span of 6 months i.e. an increase of 9888 aircraft movements after the reduction of VAT on ATF from 16% to 1%.
Scindia stated that many other states, such as Andhra Pradesh, Chattisgarh, Nagaland, Orissa, Punjab and Sikkim have followed suit.
“The Minister emphasised on the need to reduce the existing VAT/Sales Tax on ATF to 1%-4% at all airports with immediate effect. Besides, it is worth noting that the revenue collected by the State on account of VAT on ATF is an insignificant proportion of the overall State finances. In any case, this will be more than offset by the positive impact of the air connectivity to the State through the flow of economic activities”, read a press release.
The 22 states/UTs to which the Minister wrote include Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Madhya Pradesh, Mizoram, Rajasthan, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh, Jammu & Kashmir, National Capital Territory of Delhi, Ladakh, Andaman Nicobar, and Dadra and Nagar Haveli and Daman & Diu.
Last month on July 23, the Civil Aviation Ministry had formally asked the Finance Ministry to bring ATF under the ambit of GST at an applicable rate not higher than 12% with full input tax credit, as per a submission made by the Civil Aviation Ministry before a parliamentary standing committee.
Airlines had also suggested last month, in wake of the pandemic and its adverse fall-out on the airline industry, that until ATF is placed under GST, VAT should be capped at 5% and the 11% excise duty should be eliminated.
