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States not likely to cut ATF tax, say surcharge fuels cos profits
August, 02nd 2008

Airlines are unlikely to get a tax breather as they battle spiraling costs of aviation turbine fuel (ATF). This is because the state governments are not very keen to reduce the sales tax on aviation turbine fuel to 4%, as was proposed by the civil aviation ministry.

States are of the view that there is no point in reducing the tax on ATF as airlines already impose a heavy fuel surcharge on passenger tickets and get adequate compensation through that.

The empowered committee (EC) of the state finance ministers have repeatedly discussed the issue in their meetings and even asked for representations from the airline industry and the ministry of civil aviation. The EC has asked for some more details from the ministry of civil aviation about the fare pricing, but it is unlikely that they will cut the sales tax, an official said. The EC is likely to discuss the issue in the next meeting. Incidentally Andhra Pradesh and Kerala have already reduced the tax on the fuel to 4%.

ATF, used by the domestic airlines attract customs duty at 10% and excise duty at 8%. Apart from this, states levy sales tax at rates ranging between 20% and 30% on the fuel. ATF prices have more than doubled up in the last two years and have severely hit the profit margins of the domestic airlines.

Airlines have resorted to increase their fares, consequently losing out on the passengers. In fact, Jet and Kingfisher hiked fares by 10% on Thursday, mainly because of higher ATF prices. To bail out the airline industry, the civil aviation ministry had proposed bringing ATF under the status of declared goods so that they would be taxed uniformly by states at 4%. Over 40% of the operating costs of domestic airlines are on account of ATF as against 20% for international carriers.

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