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Air fares may get lighter on jet fuel tax rejig
November, 19th 2008

The government is examining the possibility of notifying jet fuel as a declared good . This would ensure that jet fuel attracts uniform sales tax of 4% across the country, against the prevailing average sales tax rate of 21%. If this were to happen, airline companies, which have largely resisted reducing fares despite a fall in fuel prices, are likely to do so. This should come as a major relief to air travellers who have seen an almost 100% jump in travel costs in some cases in the early months of financial year 2008-09 .

The issue of high sales tax on ATF and ways of rationalising this was discussed in a meeting on Tuesday. The law ministry has been asked to look into the possibility of bringing an ordinance in Parliament in the absence of a finance bill to put ATF into declared goods category. The civil aviation ministry would also take up the issue of sales tax with the states on one-on-one basis, a person close to the development told ET on condition of anonymity.

A committee of secretaries (CoS), which was set up in August to look into the financial crisis being faced by airline companies, had a meeting on Tuesday. It has asked the law ministry to explore if an ordinance could be issued to notify the fuel as a declared good.

The government recently announced a bailout package for airline companies, which included measures like removal of the 5% customs duty on jet fuel and an extended credit period for airline companies to pay off their outstandings to oil companies.

WITH crude prices falling by over 60% in the past three months to almost $55 a barrel, petroleum products too have seen significant softening of prices. The price of jet fuel, known as Aviation Turbine Fuel (ATF) in industry parlance, has fallen by almost 40% in the past few months.

In the meeting held on Tuesday, the civil aviation ministry officials strongly put forward their demand of rationalising the taxes and levies on ATF arguing that market was volatile and there was no guarantee that fuel prices would remain at the same level. If ATF gets declared goods status it will be a saviour for airlines and bring them back into health state, Kingfisher Airlines executive vice-president Hitesh Patel said.

The high-powered CoS, chaired by cabinet secretary KM Chandrasekhar, took note of the high fuel price and its effect on air-connectivity , particularly to small towns and cities. The committee was set up by prime minister Manmohan Singh in the backdrop of high jet fuel price in line with skyrocketing global crude price, especially during June-August period this year.

A civil aviation ministry statement, after the high-level committee meeting, said: During the meeting, the aviation ministry pitched for 
rationalisation of sales tax of ATF to bring it to the international level. The Centre has asked the finance ministry to examine the issue. It also asked the finance ministry to take up the issue of airfare with airlines in the wake of drop in fuel price.

ATF prices were slashed by over Rs 5,580 per kilolitre (kl) last week, the fifth cut since August when rates rose to an all-time high of Rs 71,028.26 per kl, to Rs 39,380.51 per kl with effect from November 15 midnight. The current jet fuel price is similar to that of September 2007 price. While the fuel price has come down to September 2007 level, airlines are keeping the fuel surcharge (a significant part of the air fare sometimes double the basic price) as high as Rs 3,100 for a long-haul air travel. During September last year, airlines were levying about Rs 1,350 as fuel surcharge for a similar journey.

We are evaluating the impact of recent drop in fuel price on our bottomline. If the cash intake is low, it will be very difficult to clear the outstanding bills (fuel and airport charges), Mr Patel of Kingfisher Airlines said.

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