THIRUVANANTHAPURAM, 15 March 2008 — Domestic flights to Kerala are set to become cheaper as the state government has decided to cut sales tax on aviation turbine fuel (ATF) drastically. The government wants to turn the state a cheaper destination for holidaymakers. The tax on the aviation turbine fuel would come down from 33 percent to four percent, according to the budget for 2008-09 passed by the assembly this week.
According to industry sources, the ATF costs amount to 40 to 45 percent of an airline’s total operating costs and its prices in India are 60 to 100 percent higher than in other countries.
India’s Aviation Minister Praful Patel had recently appealed to the provincial governments to help the industry by reducing the tax. Andhra Pradesh took the lead last month by cutting the tax on ATF to four percent from a staggering 33 percent.
With Kerala and Andhra Pradesh heeding the industry’s demand, the southern states such as Tamil Nadu and Karnataka are left with no option but to follow suit or leave the entire fuel-lifting business to their neighbors. The average tax on ATF or jet fuel in India currently is 23 percent.
Reduction in sales tax by the two states is encouraging several air carriers like Air-India, Spice Jet, GoAir and IndiGo to refuel from airports located in the states.
In 2004, the Kerala government made the ATF for international carriers completely tax-free hoping to bring down exorbitant air fares on the lucrative Gulf sector to help the expatriate community. But the airlines refused to pass the benefits to the customers.
The state’s economy is heavily dependent on the remittances to the tune of some Rs.250 billion from its overseas workforce and the booming tourism industry which crossed the annual revenue of Rs.100 billion last year. Cost-effective air connectivity is expected to help both sectors.
“It is hoped that this concession will be passed on by the airlines to passengers,” Finance Minister Dr. Thomas Isaac said in his budget speech.
As of now, the average price of ATF for domestic airlines is Rs.19811 per kiloliter as against an international average of Rs.10192 per kiloliter. Kerala and Andhra along with Maharashtra, West Bengal, Delhi, Tamil Nadu and Goa are charging higher air fuel tax.
The budget, which shows a deficit of Rs.6.27 billion, also proposes to set up a welfare fund for overseas workers and allocations for implementing schemes based on the Sachar Committee report for the welfare of Muslims.
