Centre suggests states cut tax on aviation fuel

In a move to cut the high state taxes on aviation turbine fuel (ATF), the central government has suggested states agree to classify the item in the ‘declared goods’ category.

The matter has been referred by the Union finance ministry to the Empowered Group of State Finance Ministers on tax matters. The value added tax (VAT) on ATF is usually between 24 and 35 per cent. VAT is a state subject. However, under Section 14 of the law on Central Sales Tax, if an item is part of the ‘declared goods’ category, the rate can be brought down to four per cent.

The move follows a meeting last week between the Prime Minister and heads of various aviation companies, where the latter pleaded for help in their financially difficult position. The tax on ATF, which forms at least 40 per cent of their operating cost, was on the agenda. At present, ATF is part of the ‘declared goods’ list only in a few states, Maharashtra being one. The tax there is four per cent.

Sources said the finance ministry was also looking into the possibility of a financial bailout for private banks in terms of a debt recast by banks. This would primarily include rescheduling of interest payments and has to be discussed with the Reserve Bank of India, which sets the rules for asset classification, said a source. There are, however, dissenting views within both the sector and the ministry. Some officials say aviation is not the only industry facing a crisis and growth sluggishness has been general.

ATF costs have soared this year, with oil import costs. On an average, fuel costs are 60 per cent higher in India than in other countries, primarily due to state taxes, some as high as 35 per cent.