Gujarat government has sharply reduced tax on aeroplane fuel for flights operating within the state to encourage intra-state aviation. Value-added tax on Aviation Turbine Fuel was cut from 30% to 4% for all non-scheduled flights days after the state roped in Capt Gopinath-led Deccan Charters to start intra-state aviation service. An aviation policy is in the works, a state official said.

Corporates operating own flights in the state can now save up to 20% on fuel costs. Fuel cost constitutes around 40% of the total operating cost of an airline. Business groups like Adani, Reliance, Essar, United Phosphorous, Sterling, Electrotherm among others regularly use own planes in the state.

Aviation experts say the decision will boost business travel and tourism within the state. Gujarat is among the top three states that attract highest domestic investments.

"Scheduled flights are already getting the benefit of lower VAT on ATF. Now the same rate is applicable to non-scheduled flights," said Vipul Mitra, principal secretary in the state aviation and tourism department. The finance department has also given its nod to the aviation department's move.

Gujarat government has been focusing on promoting intra-state aviation in terms of passenger travel and logistics. It has floated a company 'Gujarat State Aviation Infrastructure Company Limited (Gujsail)' to facilitate infrastructure requirements for the airlines.

The policy draft of the proposed 'Aviation Policy' has a provision of setting up of an ATF trading company which will be a joint venture between Gujsail and Gujarat State Petroleum Corporation Limited. The decision came in the aftermath of the central government's decision to open the ATF market for public and private players. Reliance Industries Ltd was the first private player to obtain licence to market ATF in India.

As per a central government notification, states can levy VAT on ATF for aircraft that weigh less than 40 tonnes. Normally, aircraft with a capacity of 60 seats and below come under this category. Intra state services were started after the aviation sector was opened up to the private players.

"Many companies tried to start similar services in other states. However, the services were cancelled after they were found to be financially unviable," said a department official. With business and trade activity booming in the state, authorities feel that business Gujsail is also setting up a Maintenance, Repair and Overhaul (MRO) hub in the state.