Delhi govt wants to know if cut in ATF tax will boost revenue

The Delhi government has requested airlines to come up with a detailed note on how decrease in sales tax on aviation turbine fuel (ATF) will lead to higher offtake of fuel from Delhi airport, before taking any measure for reduction in taxes.

Airlines have been repeatedly making representations to the state government asking for a reduction in sales tax on ATF from the current 20 per cent to 4 per cent.

The government wants to know how much will fuel tankering at Delhi airport increase if the sales tax was reduced, so that their (the Delhi government's) revenues were not impacted, said an industry source.

Currently, Delhi accounts for around 25 per cent of India's total domestic traffic. Carriers do around 20 per cent of their total fuel tankering from Delhi airport.

"If the taxes come down, fuelling at the airport will increase to around 25 per cent," said a senior executive of a low-cost carrier based out of Delhi.

Considering the bulk of domestic traffic and ATF that Delhi airport accounts for, this would also mean a major enhancement of revenue for an airline.

Spice Jet, for instance, estimates it will spend Rs 1,000 crore on fuel for 2008-09. Of that around Rs 200 crore worth of fuel will be tankered from Delhi airport. If sales tax on ATF comes down from 20 per cent to 4 per cent the airline will only have to spend Rs 8 crore as sales tax on ATF for fuelling at Delhi for the year instead of Rs 40 crore.

Currently, ATF accounts for more than 45 per cent of an airline's costs. Recently, the Andhra Pradesh and Kerala governments decreased sales tax on ATF to 4 per cent. Cut in sales tax on ATF to 4 per cent from 30 per cent (average sales tax levied across the country) across will reduce operating cost by 10 per cent. Several carriers like Air India, Spice Jet, GoAir and IndiGo are now planning to refuel their aircraft at Hyderabad and Kochi airports to benefit from lower ATF prices.

Carriers say they were expecting Karnataka and Tamil Nadu to follow suit "" which could encourage carriers to make south India their fuelling hubs. While Hyderabad airport will start levying the decreased surcharge from the first day of its operations (March 16), the reduced charges will be applicable to all airports at Kerala from April 1.

According to industry estimates, an average low-cost carrier would save Rs 30 lakh per month by refuelling at Hyderabad airport.