Govt to offer tax rebate on aviation turbine fuel

Move aimed at attracting national, international carriers

In a first ever move by any government in the entire country which will impact the air traffic over the state's skies, the Andhra Pradesh government has offered a sales tax rebate of up to 70 per cent on aviation turbine fuel (ATF) to air carriers who operate 100 and more flights a week from Hyderabad.

The sales tax rebate is part of the move by the state government to encourage all major national and international airlines to set up their hub in the state capital.

The sales tax concessions will be in two slabs. According to the orders issued by the state government, any airlines which operates 140 and more flights per week (starting from Monday and ending with Sunday) will be given concession from out of the sales tax levied and paid at the present rate of 30.55 per cent on ATF to the extent of 25 per cent by way of reimbursement.

The resultant levy of sales tax would be only 5.55 per cent for the airlines which can avail of the top slab concession.

Under the second category, any airlines operating between 100 and 139 flights from Hyderabad will be given a 15 per cent concession, which means the resultant sales tax being paid by the airlines on ATF would be 15.55 per cent.

The response to the government's decision was so quick that the Indian Airlines, which used to operate 77 flights per week, is now planning to increase the number of its flights from Hyderabad to 104 to get the tax concession. Air Sahara plans to steeply increase the operations in the state to around 140 flights a week from the existing 28 flights, from January next year.

It is learnt that other airlines are also planning to increase their operations from the Hyderabad Airport to make use of the tax concession. The other two important operators "� Jet Airways and Air Deccan "� operate between 77 and 54 flights a week from Hyderabad respectively.

"The existing sales tax of 30.55 per cent on ATF in Andhra Pradesh is as good as that of any other state in the country. Since there was no concession involved so far, there was no incentive available to attract the airlines to increase their operations from Hyderabad Airport," N P Ramakrishna Reddy, additional secretary, TR&B department, told Business Standard while justifying the government's decision.

The government's move is intended to encourage hub operations of all the major airlines from Hyderabad apart from providing good air connectivity to other smaller airports within Andhra Pradesh, thereby increasing the traffic and consequently yielding direct and indirect benefits to the state, he said.

The traffic through the Begumpet Airport in Hyderabad in the last fiscal was registered at 2.2 million passengers. Traffic levels are expected to grow significantly as the flights operating from Hyderabad are expected to increase up to 370 flights per week in a couple of months time.

The Congress government's strategy and approach to encourage flight operations in the state has been fine tuned and has learnt from the previous experiments that failed to yield any results.

Earlier, the state government had reduced the sales tax by 4 per cent from the original 31.55 per cent level on ATF to promote better air connectivity within the state. But the move was withdrawn and the sales tax on ATF was restored at 30.55 level in July 2004 through a new GO under APGST Act 1957.

According to P Vivek, joint commissioner of the state's commercial taxes department who deals with the subject, the sales tax accrued to the state on account of ATF was Rs 48 crore last year on sales of Rs 160 crore.

Though the ATF sales turnover is expected to grow significantly, the tax concession formula introduced by the state government may adversely impact the overall revenue receipts.

"As such, our tax collections are expected to increase on account of the government's decision as the reimbursement of tax could be made at some other counter," Vivek said while responding positively to the latest government move.

The sales tax on ATF levied in Tamil Nadu and Maharashtra is 30 per cent while it is 28 per cent in Karnataka.

These concessions were also been necessitated keeping in view the future Value-Added Tax (VAT) and Uniform Floor Rate requirements, according to the government. The state government, however, intends to continue with the levy of turnover tax.

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Rebated skies

• Airlines which operate 140 or more flights a week will have to pay only 5.55% as sales tax on ATF
• Airlines operating between 100 and 139 flights from Hyderabad will have to pay 15.55% as sales tax on ATF