Urgent need for rationalization of ATF taxes to bring down airlines' operating costs: Study

Implementation of a reduced and uniform taxation structure on air turbine fuel (ATF) across all states will bring fuel costs largely in line with global levels and improve financial health and competitiveness of airlines by reducing their operating costs, noted a recently concluded ASSOCHAM-Yes Bank joint study.

"Reduction in ATF costs would spur aviation related activities and have a multiplier effect in terms of job creation and revenue generation in related industries like tourism, trading and manufacturing," noted the study titled 'Indian Civil Aviation: At the cusp of taking off,' conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with Yes Bank.

Rationalisation of value added tax (VAT) should be consensual, involving deliberations with respective state governments, suggested the study.

"Reduction in VAT on ATF implemented by states like Andhra Pradesh, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha and West Bengal during 2013-14 has shown direct benefits resulting in increased airline activities for that fiscal year, as such it can also be adopted by high consumption centres like Delhi and Mumbai."

A more conducive fiscal environment by the states for aviation sector will contribute immensely in local economic development.

It has also been suggested to abolish the regulations like '150 km rule,' for developing new airport which is not in sync with actual demand situation. "Major cities would require development of multiple airports as burgeoning population, growing economy and rising middle class with higher disposable incomes would put massive strain on existing airports."

There is a need to replace the 5/20 rule to provide long-term financial security and international quality standards to the domestic airline operators. Revisiting this rule will provide incentive for new players to enter the market due to advent of opportunity for enhancing revenues, yields and ultimately profits.

The study has recommended for according 'infrastructure,' status to the aviation sector as it would help fuel growth in the sector with advent of cheap and long-term funding through issuance of tax free bonds, raising of low-cost external commercial borrowings and others for industry operators.

The government should separate two primary functions of the Airports Authority of India (AAI) i.e. creation and maintenance of airport infrastructure and air navigation services in order to de-burden the organization and achieve operational efficiency and commercial viability.

Existing regulations importing aircraft parts, tools, supplies and equipment must be rationalized to include simplified and standardized customs, suggested the study. The regulatory and fiscal/tax structure pertaining to augmenting maintenance, repair and overhaul (MRO) facilities is critical to ensure international standards of quality and services amid domestic players.

Initiatives must also be taken for setting up new air freight stations and full-fledged operations of existing air freight stations for speeding up movement of goods with immediate effect.