India aviation ministry proposes slashing jet fuel taxes

[ejazr]

A very welcome move is this goes ahead to jump start the aviation sector.

India aviation ministry proposes slashing jet fuel taxes | Reuters

(Reuters) - India's civil aviation ministry has proposed slashing state taxes on jet fuel, which may significantly bring down costs for ailing local airlines that are reeling under a debt load of $20 billion and annual losses of $2 billion.

The ministry has sought opinion from stakeholders on reducing state taxes on jet fuel to a uniform 4 percent, according to a discussion paper posted on its website.

Different states impose sales tax at varying rates on aviation turbine fuel, going as high as 30 percent. High fuel expenses, contributing nearly half the costs incurred by airlines, has compounded woes for the sector struggling with intense competition.

"Reduction in the fuel tax would allow the Indian carriers to become competitive in servicing passengers to their respective hubs within India and compete with international carriers. This advantage would allow them to increase their market share," the paper said.

The ministry has also proposed to abolish service tax on air tickets, which according to the paper, makes air travel "a luxury rather than an efficient mode of transport."

Service tax, including fuel surcharge, is currently 773 rupees or 10.3 percent of the total fare, whichever is lower, for an economy ticket on international flights.

India has already allowed carriers to import jet fuel directly and has proposed letting foreign airlines invest in local carriers, hoping the moves will aid the embattled sector.

Analysts estimate that the move to allow direct imports could reduce costs by 15 to 20 percent as airlines would not have to buy fuel from oil marketing companies, which are mandated to levy various federal and state taxes.

 

[ejazr]

Aviation ministry proposes abolition of service tax on air tickets & sales tax reduction on ATF - The Times of India


NEW DELHI: The aviation ministry has called for abolition of service tax on air tickets and reduction in sales tax on aviation fuel from an average 25% to a uniform 4%, proposals that may not only nurse bleeding carriers back to profits, but also rein in soaring fares.

In a consultation paper released last Thursday, the ministry said the policy changes would bring in economic benefits to the tune of 45,000 crore, far outweighing the revenue loss to the exchequer, which is estimated at 3,750 crore.

The proposals are part of a larger action plan being drawn to develop India as an aviation hub. The ministry will discuss the plan with the Prime Minister's Office on Monday.

"The total operational losses of all the (Indian) airlines for 2008-09, 2009-10 and 2010-11 are approximately 19,000 crore," civil aviation minister Ajit Singh had told Parliament last month. He said 10,000 crore of losses were anticipated in 2011-12 alone. The minister said all domestic carriers, except IndiGo, were making losses.

The ministry has argued that knocking off service tax on air tickets would make them cheaper by at least 10%, providing relief to travellers stung by the dramatic rise in ticket costs in recent months.

Airfares on major domestic and international routes have shot up 30-50% during April-May mainly because of the pilots' strike at Air India and the uncertainty surrounding Kingfisher Airlines. The International Air Transport Association, a lobby group of airlines, has welcomed the ministry's initiative.

"Aviation supports 1.7 million Indian jobs and contributes 0.5% to the country's GDP," said Amitabh Khosla, IATA's country director for India. "It has the potential do much more for the economy if the government would successfully deliver on the long-standing issues of taxation that are destroying the competitiveness of Indian airlines."

Experts believe that India's unique geographical location, tourism and trade potential offer the country a great opportunity to become a global aviation hub, but unimaginative policies have allowed other aviation centres such as West Asia and South-East Asia to flourish at India's expense.

"An aviation hub's direct and indirect impact on employment creation, growth of commerce and government revenues is still not well appreciated," said Amber Dubey, partner and head (aviation) at global consultancy firm KPMG. "The need of the hour is to abolish all taxes like excise, import duties, sales tax and service tax on aviation for a period of 10 years."

Aviation turbine fuel accounts for 40% of Indian carriers' costs as against the global average of 20%, thanks to state governments levying sales taxes as high as 30%. Although states like Punjab have recently reduced the ATF tax rate to 4%, fuel sales levies remain high in Maharashtra and Delhi that host the largest air traffic.

 

[aeroblogger]

This would be an incredible move in favor of the aviation sector. It would bring airlines back to profitability, result in lower fares, and encourage growth. And more service means that the sector would use more fuel, and states would end up with more tax revenue.

The cuts don't even have to be this drastic - cutting by merely 10 or 15 percent would make a massive difference.

 

[Armand2REP]

What happens when you cut a bunch of taxes with an equal amount of slashing subsidies?

 

[aeroblogger]

What happens when you cut a bunch of taxes with an equal amount of slashing subsidies?

In the case of aviation, not much. Most of the subsidies in aviation are for Air India to serve places like Leh which nobody wants to go to and even less are willing to pay money for. These routes are completely unprofitable, and without subsidies would have no service whatsoever. However, if taxes were cut, the savings would allow airlines to reduce fares, increasing demand, increasing profit, and the end result is that the airline has more money than they would have had through subsidy - so they can justify continuing to serve the unprofitable destination with a little nudging from the government.

Outside of that, there are very few subsidies in Indian aviation. Hajj flights are the only other major example I can think of. It's a sector which the government truly doesn't care about - and the Ministry of Civil Aviation and Directorate General of Civil Aviation have demonstrated time and time again.