Indian Airlines Seek Suspension Of Excise Duty, High VAT On ATF As Operations Become ‘Unviable’

Reeling under the pressure of rising international crude oil prices, Indian airline companies have asked the government to temporarily suspend the 11 percent excise duty on aviation turbine fuel (ATF) for domestic operations.

The demand has been raised by the Federation of Indian Airlines (FIA) in a letter written to the Ministry of Civil Aviation dated April 26, according to a report by CNBC TV18. The federation sought “urgent support” from the government on the front of ATF pricing.

It warned that the airline industry in India was under extreme stress and “on the verge of closing down or of stopping its operations.”

The federation said that the operation of flights was becoming unviable due to rising fuel prices. It also said that the crack spread, that is, the margin charged by oil refining companies, was increasing despite no significant rise in the underlying costs. This was limiting the benefit of any easing in crude oil prices.

Hence, the federation asked the government to reinstate a “crack band” pricing mechanism, meaning that companies should be asked to follow a limited range of charging margins.

The airline federation, which counts IndiGo, Air India, and SpiceJet as its members, urged the civil aviation ministry to reduce value-added tax in key aviation hubs.

It has been reported earlier that the government was in talks with four states to reduce value-added tax on aviation turbine fuel. The Ministry of Civil Aviation has held separate meetings with the governments of Delhi, Tamil Nadu, West Bengal, and Maharashtra to seek relief on VAT levied by the states on jet fuel.

In its letter to the aviation ministry, the federation said that the recent hike of Rs 73–75 per litre in ATF prices on international operations has made some overseas routes “completely unviable.”

This has eroded the margins of airlines as the cost of operations has jumped from around 30–40 percent earlier to 55–60 percent.