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High service tax, ATF price hurting aviation sector
June, 12th 2012

With the aviation sector facing acute crisis, Civil Aviation Minister Ajit Singh is unhappy over the recent increase in service tax on air tickets and high jet fuel price and would take up the issue with Prime Minister Manmohan Singh for a re-look into the matter.
Ajit Singh, who has already written to Finance Minister Pranab Mukherjee and plans to consult him again, underlines that the increase effected recently in the service tax on air tickets and levies on aviation turbine fuel (ATF) is hurting the aviation sector.
Earlier, service tax was levied on 10 per cent of the total value of the ticket with a cap of Rs 100 for domestic ticket and Rs 500 for international ticket. This has been hiked to 40 per cent of the total value of the ticket without any cap, he told PTI in an interview.


With regard to ATF price, he said it was at least 50 per cent higher here than in places like Singapore and Sharjah and determined not in "transparent" manner.
"Both these issues I will take up...I had written to the Finance Minister long time ago, I will write to him again and I will consult him. I will talk to the Prime Minister also," an unhappy Ajit Singh said.
Talking about service tax, he said, "no other country" imposes it on international passengers while for domestic passengers, it is uniform under GST, on which they get offset.
Referring to the increase in service tax on air tickets, the Minister said, "it is really hurting the passenger fares."
About ATF price, Ajit Singh cited it as one of the reasons for the aviation sector doing "very badly".
He said ATF here costs at least 50 per cent more than in big cities like Singapore and Sharjah.
"Most of this is partly because ATF is not a 'notified product' which regulator in the oil company can check.
Therefore, the pricing is not transparent," the Civil Aviation Minister said, adding "oil companies may be using it to cross-subsidise their other products."
He said there were also high taxes, ranging between 20 to 30 per cent on ATF, in the states
If it is made a "declared good", it will have uniform sales tax of 4 per cent, he said, adding that by this, states would lose a couple of hundred crores while they earn thousands of crores of rupees.
Citing an example of benefits that states could accrue by lowering sales tax, he said Chhattisgarh reduced it to 4 per cent and "suddenly they are earning more revenue because more planes are landing there."

Talking about the adverse impact of high ATF prices, he said that for some of low cost airlines, the aircraft fuel costs more than 50 per cent of their operational cost. "That is beyond their control."
The Minister also justified the government's move on FDI in aviation sector, which is being opposed by some political parties like UPA constituent Trinamool Congress.
"Some airlines already have FDI, people don't realise it. What we are talking about is if you have FDI, why keep airlines out? They have the expertise, they will have the reasons to invest here, because they will get routes and fly more," he said.
"The whole idea is to create infrastructure and create jobs," he said, noting that "money knows no boundaries."

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