The increase in the tax on aviation turbine fuel (ATF) from 4 to 16 per cent in Andhra Pradesh would fetch the state exchequer an additional revenue of around Rs 120 crore a year, but it might take away the advantage Hyderabad enjoyed because of its lower tax rates.
The new tax rate, which comes into effect from February 1, will leave only Maharashtra (excluding Mumbai and Pune) and Rajasthan at 4 per cent.
In spite of the increase, the tax in AP is lower compared with many other states. While Delhi and Haryana charge 20 per cent each, Karnataka imposes 28 per cent, Mumbai and Pune 24 per cent, Tamil Nadu 29 per cent, Gujarat 30 per cent and Bihar and Madhya Pradesh 28 per cent tax on ATF.
Former chief minister YS Rajasekhara Reddy had in February 2008 reduced the tax on ATF to 4 per cent when the Hyderabad international airport was launched to make the city an aviation hub. Following this, many airlines made Hyderabad their re-fuelling hub.
The state realised revenues of between Rs 37 crore and 40 crore on account of this. Prior to February 2008, AP levied a 33 per cent tax and realised about Rs 300 crore per annum.
“The hike in tax now is an effort to strike a balance between revenues and the rising expenditure and liabilities,” Asuthosh Mishra, principal secretary - revenue, told Business Standard.
Post revision, the end price of ATF for the airlines would be around Rs 40.12 a litre, including the 16 per cent tax of Rs 5.53 on the base price of Rs 34.6 per litre. At four per cent, the end price is Rs 35.98 per litre on the same base price.
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Compared with this, the end price of ATF at 33 per cent was Rs 52.24 a litre and Rs 40.85 a litre when the tax was reduced to 4 per cent.
“The new price is still lower than what the airlines had paid for the ATF two years ago. This is because of the decline in international oil prices,” Mishra said, adding the revenues to the state were relative to oil prices.
GMR Hyderabad International Airport Limited chief executive officer P Sirpathi said: “It is difficult to assess the impact of the increase in tax on ATF at this point in time. The airlines might absorb the hike but it depends on the agreements they have with the oil companies.”'
However, the original advantage that Hyderabad derived due to lower tax on ATF would erode, he added.
The domestic passenger traffic at the Hyderabad international airport declined to 4.66 million in 2009 as compared with 4.98 million in 2008. On the other hand, international passenger traffic increased to 1.67 million, as against 1.55 million in 2008. Domestic air traffic movements in 2009 at the airport stood at 66,487 (70,407 in 2008) and international at 13,297 (11,795 in 2008).
“We are significantly short of revenue collection this year,” Mishra said, adding the state, as of November 2009, realised Rs 15,735 crore from commercial taxes. This was just about six per cent more than Rs 14,830 crore realised in the corresponding period a year before.
“The state expected a 25 per cent growth in the commercial tax revenue but managed only six per cent due to the recession, prolonged drought and thereafter the floods,” he said.