Finmin shoots down demand for ATF tax cut

New Delhi: Domestic airlines’ bid for lower sales tax on aviation turbine fuel (ATF) has not cut ice with finance ministry. North Block has spiked civil aviation ministry’s proposal suggesting inclusion of ATF in the list of declared goods. Items under declared goods attract only 4% sales tax. At present, sales tax rate on ATF varies from 20-35%.

Civil aviation ministry and airlines companies had made a strong pitch for inclusion of ATF in the declared goods list. However, states are completely opposed to the move and have conveyed their reservation on the issue to the Centre as it would result in huge revenue loss to them, a government official said.

He said chairman of the empowered committee of state finance ministers had also written centre on the issue expressing states opposition to any such move.

Under the paragraph 14 of the Central Sales Tax Act, the centre can declare certain items of special importance as a declared good.

ATF for 7-8 seater aircraft called turboprop jets has already been lowered to 4%. Airlines wanted similar concession for aircraft used on the domestic circuit. Both, the civil aviation ministry and industry had written to finance ministry seeking a reduction in sales tax rate for regional jets also. But, finance ministry which examined the matter after budget has decided to stick to views expressed by states, the official said.

Regional jets which have a capacity of 70-80 seats ply on domestic circuits. Any reduction in sales tax could give a big boost to airlines operating regional aircraft as fuels costs forms a substantial part (40%) of total operating costs, say industry experts. Reduction in fuels costs can translate into lower fares and give domestic airlines a big boost. They feel discrimination on the basis on size of aircraft should end to make low-cost air travel reach out to many more.