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Reduce the state sale tax on aviation fuel to create more jobs: civil aviation ministry report
June, 28th 2012

If state governments across the country reduce the quantum of sales tax they levy on Aviation Turbine Fuel, the country will be able to generate 5,000 direct jobs and about 25,000 indirect jobs in the aviation sector.

The said calculation on the tax-job equation appeared in a report released last month by the civil aviation ministry. It explored the steps the government could take to turn India's major airports into hubs. One of the measures advocated to increase domestic air traffic was the reduction of state sales tax on Aviation Turbine Fuel (ATF). Currently, sales tax on ATF varies from state to state and it can range from four percent to 30 percent. India is notorious for taxing heavy. Globally, Bangladesh charges the heaviest sales tax on ATF with an average levy of 27 percent. In India, according to the aviation ministry report, the average sales tax works out to 20 per cent. Consequently, in India, fuel costs account for close to 40 per cent of total operating cost. And it is the one grievance that airline CEOs weep about.

Now, the ministry report looks at the changes the aviation sector would go through if the state governments were to be less brutal. A reduction in state sales tax from an average of 20 percent to 4 percent will bring down the fuel cost for domestic flights by around 13 percent, the report said. Assuming that airlines will pass on the benefit of this reduction in cost to the passengers in full, airfares on domestic sectors will come down by 6 percent and that in turn will boost travel. ``Using price elasticity studies of air travel demand, it is established that a 6 percent drop in airfare will lead to a 5-8 percent increase in air traffic on domestic sectors,'' the report said. That would lead to two kinds of employment: Direct/Indirect Employment (those employed in the airport and by ancillary industries like fuel companies, retail etc) and Induced Employment (jobs created due to spending by new employees in the above category). The ministry report summarises that a 3.3 to 5.2 million increase in annual domestic traffic will translate to creation of 3,150 to 5,150 direct/indirect jobs and 16,000 to 26,000 induced jobs. It would have an annual economic impact of Rs 700 to 1000 crore.

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