The government Wednesday informed parliament that the cash-strapped Indian airline sector is being troubled by rising air turbine fuel (ATF) prices caused by high sales tax and other levies.
Civil Aviation Minister Vayalar Ravi said in a written reply to the Lok Sabha: "Various taxes imposed by government on ATF is one of the reasons of higher cost of domestic aviation fuel."
According to Ravi, Kolkata topped the charts for highest jet fuel prices at Rs.68,769.64 per kilo litre, followed by Chennai at Rs.61,687.17, Mumbai at Rs.60,733.64.
Domestic jet fuel is being sold at a much higher price than other Asian cities like Kuala Lumpur, where ATF is sold at Rs.41,009.33 per kilo litre, followed by Singapore at Rs.42,289.90 and Dubai at Rs.43,087.33.
Jet fuel prices have increased by 30 percent since December 2010, and domestic airlines are expected to lose Rs.3,500 crore in the first six months of this fiscal. The fuel comprises 50 percent of the operating cost.
On average, sales tax on jet fuel is in the range of 22 percent to 35 percent depending on various states.
Vijay Mallya, chairman of the cash-strapped Kingfisher Airlines, had said they were planning to directly import jet fuel to cut costs.
Meanwhile, Prime Minister Manmohan Singh has agreed to ask the finance ministry to consider lowering the central excise tax on jet fuel, said two people with direct knowledge of the matter who didn’t want to be identified.
Singh, however, declined to create a dedicated committee to study the woes of the airline sector in a meeting with industry heads on Saturday.
Jet fuel constitutes as much as 40% of an airline’s total cost in India. The Federation of Indian Airlines, or FIA, says the fuel cost is largely tax-led, with a central excise tax of 8% and levies of up to 30% by various state governments.
Singh met the country’s airline owners and chief executives after the industry lobby group sought his help to tide over the financial crisis the carriers are facing, exacerbated this year by rising fuel prices and a depreciating rupee.
The meeting was attended by Jet Airways (India) Ltd chairman Naresh Goyal, IndiGo promoter Rahul Bhatia and president Aditya Ghosh, Kingfisher Airlines Ltd CEO Sanjay Aggarwal, SpiceJet CEO Neil Mills, GoAir promoter Jeh Wadia and GMR Infrastructure Ltd chief G.M. Rao. Kingfisher promoter Vijay Mallya, SpiceJet’s Kalanithi Maran and Air India officials were not present. GMR runs the Delhi and Hyderabad airports. “The request was to do something about the excise tax element on ATF, which is a central subject,” said one of the two people mentioned above.
One major carrier also pitched a request for a committee under the principal secretary to deal with the industry’s various issues, but the Prime Minister “said ‘no’ since this is a cabinet system”, this person said, adding there will be no follow-up meeting but airlines can approach the principal secretary to discuss issues. The central excise tax is under the direct control of the finance ministry. Sales tax on fuel can be changed only by the state governments, many of which have so far resisted a relaxation.