New Delhi: In order to give impetus to air travel, Union Minister for Civil Aviation Jyotiraditya Scindia has written a letter to 22 states, including Union Territories (UTs), urging them to rationalise Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) across all airports in their state within the range of 1 to 4 percent. He has urged them to take forward the common intention of boosting air travel and connectivity in the state with a view to accelerate its economic development.
The price of ATF is a major component of the operating cost of airlines and the tax on ATF contributes significantly to the ATF price. Lowering the VAT on ATF would enable a force multiplier effect with regard to air connectivity in states.
Citing the examples of states like Kerala, Andhra Pradesh, Meghalaya, Nagaland, Sikkim and Telangana, the minister said that they have brought down the VAT on ATF to 1 percent and even below. As a result, they have seen a substantial jump in the number of aircraft movements in their states. For example, the government of Kerala has brought down VAT on ATF from 25 percent to 1 percent. Subsequently, the number of aircraft movements at Thiruvananthapuram airport increased from 21,516 flights to 23,566 flights in a span of six months, which is an increase of 2,050 aircraft movements. Similarly, aircraft movements at Hyderabad saw a rise from 76,954 flights to 86,842 flights in a span of six months, which is an increase of 9,888 aircraft movements, after the reduction of VAT on ATF from 16 percent to 1 percent. Many other states, such as Andhra Pradesh, Chattisgarh, Nagaland, Orissa, Punjab and Sikkim have followed suit.
The Minister brought to attention of the states that air connectivity directly promotes tourism growth, output growth and employment generation, in addition to various indirect benefits to the economy. In fact, the aviation sector has a high output multiplier of 3.25 and employment multiplier of 6.1.
Presently, there is a huge disparity between states, and even within states, in terms of VAT being levied on ATF. Hence, Scindia has emphasised on the need to reduce the existing VAT/Sales Tax on ATF to 1-4 percent at all airports with immediate effect. Besides, it is worth noting that the revenue collected by state governments on account of VAT on ATF is an insignificant proportion of the overall state finances. In any case, this will be more than offset by the positive impact of air connectivity to the state through the flow of economic activities.
The list of 22 states and UTs include Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Madhya Pradesh, Mizoram, Rajasthan, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh, Jammu & Kashmir, National Capital Territory of Delhi, Ladakh, Andaman Nicobar, and Dadra and Nagar Haveli and Daman & Diu.
(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)