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State to lower VAT on ATF
March, 06th 2013

The State Government, to attract more domestic and international flights, expressed readiness to reduce VAT on Aviation Turbine Fuel (ATF) to 5 per cent to drive the aviation boom in the State.

Chief Minister Naveen Patnaik announced this in response to a request made by Civil Aviation Minister Ajit Singh, who inaugurated the new domestic terminal building of Biju Patnaik Airport here on Tuesday.

The State Government would reduce VAT for international flights touching Bhubaneswar. Similar concessions would be extended to all domestic flights to and from Bhubaneswar which will touch at least one more airport within the State, Naveen said.

The Centre has been pressing the States to reduce VAT on ATF so as to make air operations commercially viable for the carriers. ATF is subjected to VAT ranging up to 30 pc by most of the States. ATF accounts for almost 50 pc of the operational costs of airlines and has an unfavourable impact on air transport operations. Despite high passenger traffic growth, the airlines sector continues to struggle with huge losses.

Singh reasoned that lowering tax on ATF will help international airport in Odisha. Many airlines will be flying here to fill up, taking advantage of the lower costs. ‘’We have witnessed substantial upward increase in traffic in States where the tax has been lowered. In Chhattisgarh, the VAT reduction to 5 pc resulted in a five-fold increase in tax revenue due to the surge in travel, hospitality, tourism and allied sectors effected by an overwhelming increase in air traffic. Aircraft movement rose from 1,805 in 2002 to 10,411 in 2011 while passenger traffic at Raipur Airport went up from 15,000 a year in 2000 to 8.2 lakh in 2011”, he said.

The Minister observed that the if the first Indian aviation boom was due to low cost carriers, the next will be spearheaded by low cost airports. “The Ministry is in the process of identifying a low cost viable model for development of small airports to enhance ‘regional connectivity’. I urge the State Government to prepare a road map for development of civil aviation infrastructure in Odisha.

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