Thursday, December 28, 2006

Get rid of undue tax on aviation fuel

New Delhi: The domestic airlines could soon purchase fuel (aviation turbine fuel) at concessional duties, on a par with the levy on the fuel purchased by local carriers for their international operations, as per recent reports.
This would increase the profitability of the domestic carriers for whom fuel accounts for a disproportionately higher share of costs. It would also reduce the disadvantage faced by the purely domestic carriers vis-a-vis those domestic carriers that have been allowed to fly international routes.
Aviation fuel is subject to an excise duty of 8%. In addition, states levy a sales tax on fuel purchases by airlines that can go up to 40% in some instances. On an average, the state sales tax works out to about 25%. These levies translate into a mark-up of about 35% on the basic price of fuel.
The fuel companies pocket another 14% as their margin. As a result airlines pay nearly double the basic price of fuel. Since fuel accounts for a significant percentage of operating costs of airlines, the cost structure of the domestic aviation business is pushed up with implications for airline profitability.
28/12/06 Vinay Pandey/Economic Times