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Andhra Pradesh government slashes VAT on ATF to 1%
September, 22nd 2014

In a major boost to the civil aviation sector in Andhra Pradesh, the state government has slashed the rate of tax on aviation turbine fuel (ATF) to 1% from 16% on Thursday. According to GO MS No 310, the revenue department stated that the AP Value Added Tax Act, 2005, would be amended to bring down the VAT on ATF to 1%. The notification will be published in the AP Gazette on September 20.

Confirming the move, communications advisor to the AP government, Parakala Prabhakar said the state government has decided to slash the tax on ATF to attract more airlines to airports in the state.

The development comes in the backdrop of a high-level meeting that chief minister Chandrababu Naidu and Union civil aviation minister Ashok Gajapathi Raju had in Delhi with top executives of international and domestic airlines where the state government had indicated that VAT on ATF would be slashed. According to industry sources, the decision of the state government would result in a massive boost to civil aviation, improving air connectivity to airports located in Vizag, Vijayawada and Tirupati.

According to a revenue department official, while the move will initially result in tax losses to the state, the policy would ensure that more number of airlines stop-over at airports in the state offsetting the losses.

Commenting on the move, an airlines industry source said, "This will attract more airlines to stop over at AP airports as they would like to benefit from reduced taxes at a time when competition is only getting tougher and every little bit to cut costs counts. Even passengers will benefit as the airlines can make fares more affordable."

While pointing out that VAT on ATF was one of the key issues affecting the growth of the airline industry, managing director of Air Costa LVS Rajasekhar said, "The relief will definitely benefit air travel. Aviation fuel cost is a major concern for air carriers as it comprises nearly 50% of the operating cost as compared to 25-30% in other countries."

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