Government officials said P Chidambaram, during his interaction with the empowered committee of state finance ministers on value-added tax earlier this month, had indicated that he was in favour of lowering duty on aviation turbine fuel.
Officials said Chidambaram had indicated that state governments should consider lowering the duty by bringing it under the VAT (at present, ATF attracts a duty of 20 per cent).
Another option being actively considered by Chidambaram is to declare ATF as a good of special importance under Section 14 of the Central Sales Tax Act. This will help reduce duty on ATF to 4 per cent. For this, the civil aviation ministry has appealed to the Prime Minister's Office.
The ministry also wants to do away with the monopoly of public sector oil companies in supplying ATF to rationalise the fuel's spiraling prices in the domestic market.
The ministry has also pointed out that ATF sold to foreign carriers for their international flights is exempt from sales tax, while the tax is levied when the fuel is sold to Indian carriers.
It has also been demanded that ATF sold to international flights of Indian carriers be treated as deemed exports under Section 5 of the Central Sales Tax Act.
This comes from the civil aviation ministry at a time when domestic carriers have twice hiked air fares by 10 per cent in less than three months.
Domestic ATF prices touched an unprecedented high of Rs 30,800 in October per kilolitre against Rs 26,000 per kilolitre last year. The international prices of the fuel vary between Rs 13, 600 per kilo litre and Rs 19,300 per kilo litre.
Domestic carriers have pointed out that their bottom lines have been badly hit due to the unprecedented rise in global crude oil prices and the consequential increase in the price of ATF. For example, Jet Airways has seen its cost of operations going up by about Rs 14 crore (Rs 140 million) a month recently as a result of the price increase.
For Air Sahara, the cost has gone up by about Rs 8 crore (Rs 80 million) a month as a result of the increase in fuel prices in the last four months. Indian Airlines had incurred an additional expense of Rs 224.34 crore (Rs 2.24 billion) in 2002-03 due to the increase in ATF prices.
The total fuel bill of the carrier was Rs 975 crore (Rs 9.75 billion) in 2002-03 against Rs 808.98 crore (Rs 8.08 billion) in the previous year.
Pointing out that the ATF cost constituted about 30 per cent of the operating cost of airlines in India compared with 10 to 15 per cent of the international carriers, airline executives said that one of the major reason for this was the high sales tax levied by some state governments on jet fuel.
