Odisha mulls cut in ATF sales tax to kickstart global air operations

The Odisha government is mulling to cut sales tax on aviation turbine fuel (ATF) to woo private carriers for start commercial flights operations from Bhubaneswar to various domestic and international destinations. The Biju Patnaik airport in the city is poised to have an international air terminal by August this year.

With sales tax on ATF in Odisha still high at 20 per cent, the state is keen to prune it to unlock the huge business potential which these carriers promise to offer. Realizing the growing importance of Bhubaneswar as a business destination, international airline operators like Fly Dubai and Air Asia had evinced interest in running their flights following commissioning of the international terminal facility.

More recently, Gurgaon-based low cost carrier Indigo has offered a bait to the state government- it is ready to take off international flights from the city if the state government slashes ATF substantially- on the lines of Andhra Pradesh government. In February 2008, the Andhra Pradesh government had drastically reduced sales tax on ATF from 33 per cent to four per cent.

“Indigo has presented a proposal to the general administration (GA) department, seeking reduction in ATF sales tax to enable it to start global air operations from Bhubaneswar.The GA department, in turn, has asked us to examine the possibility. Presently, ATF sales tax stands at 20 per cent and its share to our overall commercial tax collection is very negligible. There is possibility of a cut in ATF sales tax rate if it promotes air connectivity. The Ministry of civil aviation has also urged all state governments to cut ATF tax rate and we have sought the views of the commercial tax department,” said a senior official of state finance department.

Officials of the directorate of commercial taxes could not be reached for comments on the matter.

Sales tax on ATF ranges from 4 to 32 per cent in various states. Sales tax on ATF in Maharashtra stands at five per cent except for the Mumbai and Pune airports. The Chhattisgarh government has brought down ATF tax rate to four per cent to boost air connectivity.

Fuel bills in India account for a whopping 45-50 per cent of the operating cost of airlines compared to 13.3 per cent in European nations. ATF prices in the country are also dearer by up to 60 per cent than competing hubs like Dubai, Singapore and Kuala Lumpur, blunting the competitive edge of Indian carriers. Burdened by steep cost of fuel, the airline industry has long been clamouring for a tax cut on ATF.

Responding to the concerns of the ailing local airlines reeling under a debt load of $20 billion and annual losses of nearly $2 billion, the ministry of civil aviation has sought opinion from stakeholders to reduce state taxes on jet fuel to a uniform four per cent.

Earlier Invest Bhubaneswar, a forum to promote Odisha as an investment destination, had stressed on the need to slash ATF sales tax rate to four per cent while simultaneously pitching for upgrading the city airport into an international airport. The efforts were led by Devasis Sarangi, member (core group) of Invest Bhubaneswar, underscoring the potential of Bhubaneswar as an international air traffic destination.

“Pruning sales tax on ATF can help flights from Delhi, Mumbai, Kolkata, Hyderabad, Bangalore and Chennai to South-East Asian and west Asia countries to use Bhubaneswar airport as a hopping point or a refueling station. The city airport is also ideally located to have international operations to South East Asia,” said Sarangi. Following the commissioning of the new terminal, the Bhubaneswar airport would have an overall passenger handling capacity of 1.93 million per year. It would also have the capacity to handle 20 outgoing and 20 incoming flights every day. Passenger traffic at this airport has witnessed a year-on-year growth of 12.81 per cent in 2007-08, 9.67 per cent in 2008-09 and 31.01 per cent in 2009-10.