Cuts in tax on aviation turbine fuel sought

The civil aviation ministry has sought measures in the Budget to reduce the cost of operations of airlines, including the rationalisation of the tax structure on aviation turbine fuel and dismantling the monopoly of public sector oil companies on the supply of fuel.

The civil aviation ministry has also sought a year's extension in imposing withholding tax on aircraft lease charges.

According to sources, Civil Aviation Minister Praful Patel has communicated these demands to Finance Minster P Chidambaram in a meeting earlier this week. Sources said the civil aviation ministry had also appraised Prime Minister Manmohan Singh on the issue.

Withholding tax was imposed in the last year's Budget, which was subsequently withdrawn for a year to allow a level playing field to new entrants in the sector.

It has also been proposed that a uniform sales tax at 4 per cent should be implemented across states to bring down the cost of aviation fuel in the domestic market.

The civil aviation ministry has also sought steps to ensure that public sector oil companies rationalise ATF prices in line with global prices.

"There should be a standard pricing mechanism for ATF. Otherwise, it will give an undue price advantage to international airlines vis a vis Indian carriers," said a civil aviation ministry official.

The civil aviation ministry's demands come at a time when the domestic carriers have twice hiked airfares by 10 per cent each in less than three months.

The domestic ATF price touched an unprecedented level of Rs 30,800 in October per kilolitre against Rs 26,000 per kilolitre in June. The international prices of ATF vary between Rs 13, 600 per kilolitre to Rs 19,300 per kilolitre.

The domestic carriers have also pointed out that the unprecedented rise in world crude prices and consequential increase in the price of ATF have caused a major dent on their bottomlines.

The ministry also wants to categorise ATF as a declared good to cap sales tax at 4 per cent for domestic airlines.

IT is also pointed out that ATF sold to international flights of foreign carriers is exempt from sales tax, while sales tax is levied on ATF sold to Indian carriers.

It has also been demanded that ATF sold to international flights of Indian carriers should be treated as deemed exports under Section 5 of Central Sales Tax.