Mumbai: The Maharashtra government has announced a sharp reduction in Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) from 18% to 7% for a period of six months. The move comes as a shield to the beleaguered aviation sector from spiralling costs due to increasing ATF prices, airspace closures and rising operational cost.
Through a notification on Thursday, Maharashtra government's finance department amended the Maharashtra Value Added Tax Act and decreased the 18% VAT on ATF to 7% till November 14. With this amendment, airlines refuelling at major state hubs – including Mumbai’s Chhatrapati Shivaji Maharaj International Airport, Navi Mumbai International Airport, Pune, and Nagpur – will see their fiscal burden significantly eased for the next six months.
The decision comes at a critical juncture for Indian carriers as airlines have been grappling with extreme stress caused by a volatile global energy market and the ongoing geopolitical instability in West Asia, which has sent crude oil prices to multi-year highs.
While the oil marketing companies – upon the union government's intervention – capped the hike in ATF prices to 25% for domestic operations in April, the price for international routes surged by over 100%.
Thanking chief minister Devendra Fadnavis, union civil aviation minister Ram Mohan Naidu Kinjarapu said that the timely intervention will benefit a large number of air travellers to and from Maharashtra.
“This reduction in VAT will help the flight operations in all these airports, and benefit the large number of passengers, by keeping the airfares in check while the global challenges continue to push airfares upwards.,” he said.
According to internal sources, the civil aviation ministry is in active discussions with multiple states, specifically with major airport hubs, to follow Maharashtra's move and reduce their respective taxes. This includes Tamil Nadu, which charges the highest VAT in the country at 29% and Delhi, which charges 25% VAT on ATF.
​​Industry analysts suggest the move also serves a strategic purpose as by lowering VAT to 7%, Mumbai has become significantly more competitive than other major Indian hubs. ​Such a move would allow airlines to claim input tax credit on fuel purchases, potentially stabilising fares for passengers who have recently faced a sharp rise in ticket prices.
Maharashtra has 16 operational airports and the highest annual air traffic among all Indian states with around 7.5 crore flyers. However, industry analysts believe that the reduction in VAT might not benefit the flyers directly with immediate price drops due to already higher operational cost but might prevent further fuel surcharge in the near future. Moreover, the reduction is also expected to safeguard regional routes that were previously on the verge of being suspended.
The Federation of Indian Airlines (FIA), representing major carriers such as Air India, IndiGo, and SpiceJet, in April had urged for reduction in VAT along with various other measures while warning of a potential industry collapse if tax relief was not forthcoming. ​The aviation industry has long argued that fuel constitutes the single largest component of its expenditure which accounts for around 40% of the operating outgoings.
The FIA claims that with the rising prices, ATF cost has jumped up to become over 60% of the operating cost. In the April letter, the federation implied that it was unfair for oil companies or the state government to earn huge profits due to increasing fuel prices while the airlines struggle to run operations.Mumbai
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