Plan to cut sales tax on jet fuel

CA. SUJAL MEHTA (Service) (3316 Points)

24 December 2008  

Plan to cut sales tax on jet fuel may be delayed
December, 23rd 2008
Airlines may have to wait for some more time before they get cheaper fuel through a lower sales tax levy, as the government has decided to put on hold the proposal to grant a declared goods status to aviation turbine fuel (ATF). A government official told ET that Prime Minister’s Office is not in favour of the move for now. Classification of ATF as a “declared good” would have reduced the sales tax on it to a lower uniform rate of 4% in all states against the varying 12-23% at present. Fuel typically accounts for nearly 50% of the operating costs of airlines. This is much higher than that in other countries, largely because of high sales tax levied by states. Following the PMO directive, the department of revenue has put on hold the proposal to grant declared goods status to ATF through an ordinance. Declared goods status can be granted only through an amendment in the law, which has to be ratified by the Parliament. However, when Parliament is not is session, the government can bring an ordinance to make a new law or make changes in existing law. The ordinance has to be subsequently approved by the parliament or it lapses. The current session of the Parliament ends on Tuesday. The department of revenue had done the groundwork for the ordinance, including moving a cabinet note, following a recommendation by the committee of secretaries which was constituted to look into the problems of the airline industry. The proposal was also backed by the civil aviation ministry. However, the state governments are completely opposed to the idea of a declared goods status to ATF as it brings them significant revenues. They are likely to take up the issue with Prime Minister Manmohan Singh, who is now handling the finance ministry portfolio. At the last meeting of the empowered committee of state finance ministers, panel chairman Asim Dasgupta had said: “States are opposed to the move (giving declared goods status) as it would cause them substantial loss of revenue. We will be writing to the Prime Minister on the issue asking him not to take any unilateral decision especially now when ATF prices have come down,” he had said. Airline companies are resisting any reduction in fares despite a fall in fuel prices. They have argued that because of the accumulated losses, it is difficult for them to cut fares. However, if ATF were given a declared goods status they were willing to consider a price cut. Airline companies had made a cumulative loss of about Rs 4,000 crore in 2007-08. A combination of high fuel prices earlier this year and declining traffic is expected to cause the losses to more than double in 2008-09.