IOC against cutting ATF base price

NEW DELHI: The country���s largest oil marketing company, Indian Oil Corporation Ltd (IOC), has said it would not reduce the base price of jet fuel, dashing hopes of several loss-making domestic airline companies.

���Base price of ATF (aviation turbine fuel) is fixed on the basis of international crude price. It is based on a principle. The principles will have to be changed for changing (reducing) the base price,��� IOC chairman Sarthak Behuria told ET.

The company���s decision follows the recent refusal by the empowered committee of state finance ministers to rationalise the sales tax on ATF. Sales tax is levied on the base price and ends up pushing costs for airlines even higher.

Last week, civil aviation minister Praful Patel met petroleum minister Murli Deora seeking his help in persuading state-run oil marketing firms to reduce the base price of ATF.

Jet fuel contributes about 40-45% to the total operating cost of an airline. The airline industry, which is estimated to have lost about Rs 10,000 crore in 2008-09, has been demanding the reduction in ATF price by rationalisation of sales tax on it.

In a presentation to the Cabinet recently, the civil aviation minister urged oil marketing companies to reduce the base price of ATF and place it on a par with international prices. He also sought government approval for classifying ATF as ���declared goods���, thereby attracting a uniform sales tax of 4% across the country. The sales tax on ATF levied by various states varies from 4% to 30%.

The Centre has maintained that sales tax is a state subject and a decision to classify ATF as a declared good cannot be taken unilaterally. It has suggested the aviation ministry to take up the matter with individual states.

States collect nearly Rs 2,600 crore on account of sales tax on jet fuel and they do not want to lose this money.
And oil firms do not want to lose any revenue on jet fuel as it is a high margin product and the only refined product they don���t sell at subsidised rates. Diesel, petrol and LPG are sold at subsidised rates.

The government has, meanwhile, constituted a group of ministers to look into the twin issue of sales tax on ATF and its base price. If ATF is accorded a declared goods status then the airline industry will save an estimated Rs 2,000 crore.