Minister of Civil Aviation Jyotiraditya Scindia has asked states to rationalise value added tax (VAT) on aviation turbine fuel (ATF) in the range of 1-4 per cent. The minister said that lower ATF rates would give impetus to air travel. Scindia wrote to 22 states and union territories (UTs) including Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Madhya Pradesh, Mizoram, Rajasthan, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh, Jammu & Kashmir, National Capital Territory of Delhi, Ladakh, Andaman Nicobar, Dadra and Nagar Haveli, and Daman and Diu, asking them to rationalise the VAT. He urged them to work together towards boosting air travel and connectivity in states.
ATF is one of the major components of the operating cost of airlines. VAT on ATF significantly increases the price of the fuel. Scindia cited examples of Kerala, Andhra Pradesh, Meghalaya, Nagaland, Sikkim and Telangana that have decreased VAT to 1 per cent and some even more. He said that these states have seen a substantial jump in the number of aircraft movements in their states.
Kerala brought down VAT on ATF from 25 per cent to 1 per cent, which in turn increased aircraft movements at Thiruvananthapuram airport from 21,516 flights to 23,566 flights -- an increase of 2,050 aircraft -- in a span of six months. Hyderabad too brought down VAT from 16 per cent to 1 per cent and saw a rise of aircraft movement from 76,954 flights to 86,842 flights in six months, which is an increase of 9,888 aircraft. Andhra Pradesh, Chattisgarh, Nagaland, Orissa, Punjab and Sikkim have followed suit.
Scindia pointed out that air connectivity boosts tourism, output growth and employment generation apart from various indirect benefits.
There is currently a huge disparity between the VAT imposed by states, especially on ATF. The minister also said the pandemic has made it necessary for VAT and sales tax on ATF to be rationalised at all airports. Scindia said that revenue on VAT is an insignificant proportion of states’ finances.
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