Chidambaram’s farewell gift to Indian carriers!

Before leaving office, former finance minister (now the home minister) P. Chidambaram had announced that North Block was willing to introduce a bill in Parliament to make jet fuel a declared good, if the government could muster enough political support to see it through the legislature. On becoming a declared good, aviation turbine fuel (ATF) would attract a uniform sales tax capped at the rate of 4 per cent across all states.
Domestic carriers are reeling under losses from high fuel costs even though global crude has reversed its steep rise quite dramatically. Indian airlines, by and large, are more vulnerable to oil shocks as Indian states milk ATF, levying sale tax at rates of up to 40 per cent on domestic airline companies. The rates of the tax are ad valorem, meaning they rise progressively as the cost rises. Delhi, for instance, collected about Rs 3,300 crore in sales tax on jet fuel last in 2007-08. ATF in Delhi is 72 per cent more expensive than comparable hubs in Singapore and Dubai mainly catering to Indian passengers.
International airlines pay the tax at 4 per cent. Hard-to-trim fuel costs thus make up more than half of the cost of operations for Indian carriers, making it tough for them to cut fares, attract more fliers and hope to fly out of near-bankruptcy.
Indian airlines, including Jet Airways, are expected to end this year with combined losses of around $2 billion, almost twice as much as they lost last year. ATF in Delhi is 72 per cent more expensive than comparable hubs in Singapore and Dubai mainly catering to Indian passengers.
International airlines pay the tax at 4 per cent. Hard-to-trim fuel costs thus make up more than half of the cost of operations for Indian carriers, making it tough for them to cut fares, attract more fliers and hope to fly out of near-bankruptcy. Indian airlines, including Jet Airways, are expected to end this year with combined losses of around $2 billion, almost twice as much as they lost last year.
17/12/08 Puja Mehra/Business Today/Sify

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Categories: Indian Aviation- In General Dec 2008