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Focus on rationalising sales tax on ATF: CII
February, 07th 2012

The new civil aviation policy that is being framed should address key issues like the sales tax the states levy on jet fuel, route dispersal guidelines and investments by foreign airlines in domestic carriers, the Confederation of Indian Industry (CII) has recommended.

"A comprehensive policy direction is needed to address the prevailing crisis and lay a path for future growth," said CII director general Chandrajit Banerjee.

The development comes as the government is working on a new civil aviation policy which will promote investments and setting up of the required infrastructure for the sector.

"We have about five months to complete the process," Civil Aviation Secretary Nasim Zaidi had said in December 2011.

According to the industry lobby, the new policy should include a waiver of state sales tax on jet fuel which accounts from anywhere between three and 33 percent.

Addition of state sales tax increases the overall cost of jet fuel in India by 50 percent more than anywhere in the world.

The fuel price, which accounts for over 50 percent of an airline's operating cost, has landed major carriers like Kingfisher Airlines, Jet Airways and SpiceJet in losses.

The industry body also called for allowing an investment cap of 49 percent by international airlines in domestic carriers.

"A liberal foreign direct investment regime would pave the way for foreign airlines to participate in India's aviation sector and strengthen it," Banerjee said.

The development comes even as the civil aviation ministry's proposal to allow foreign capital by international airlines in cash-strapped domestic carriers may come up for the cabinet's approval before parliament's budget session in March.

"We will send a proposal in regard to foreign airlines entering domestic carriers through FDI (foreign direct investment) to the commerce ministry and from there to the cabinet," Civil Aviation Minister Ajit Singh said on Jan 31.

"This may happen before the budget."

Currently, foreign airlines are not allowed to directly invest in Indian carriers for security reasons. However, 49 percent of FDI is allowed by non-airline players.

On Jan 17, a group of ministers (GoM) headed by Finance Minister Pranab Mukherjee agreed to draft a cabinet note proposing a 49 percent cap on FDI by foreign carriers' in domestic airlines.

Before this, various government departments has proposed different investment caps, from 24 percent to 26 percent. The commerce ministry's department of industrial policy and promotion (DIPP) had suggested a 26 percent cap.

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