In an attempt to meet its failing revenue target, the AAP government is planning to increase the value-added tax (VAT) on the aviation turbine fuel (ATF) from the current 20 per cent to 25 per cent.
Once VAT is increased on the ATF, the prices of routine domestic flight tickets will also go up as all domestic airlines buying jet fuel from Delhi will have to pay five per cent extra. Aviation experts believe this increase is likely to percolate down to passengers. About 62,000 lakh kilolitres of jet fuel is reportedly consumed in Delhi every month for domestic flights.
A highly-placed source said that the decision related to increase in VAT on aviation fuel is likely to be implemented within two weeks. The increase in VAT is likely to fetch an additional monthly revenue of at least Rs 6-7 crore to the Delhi government. The source said that the decision on VAT hike was reportedly taken in the light of poor VAT revenue collected from ATF, which went down significantly since the beginning of this year because of a massive decline in global oil prices.
Being the national capital, the city’s domestic airport serves as the origin as well as the transit point to hundreds of flights every day and many aircraft refill their jet fuel from here. “The VAT is being increased by only five per cent to ensure that there was little impact on the aviation sector and the passengers,” a senior official told this newspaper.
In the Budget Session, the AAP government had introduced a VAT Amendment Bill that allows it to hike the tax on 11 goods by up to 30 per cent in future, taking into account the poor VAT collection in the previous few months. The VAT accounts for a major source of revenue for the Delhi government.
Earlier, the cap on the VAT on 11 items under the fourth schedule was between 12.5 and 20 per cent. As per the bill, the government can increase VAT on petroleum and tobacco-related products, such as naptha, spirit, gasoline, furnace oil, wax (except candle wax), any mixture and combination of above products, foreign liquor and Indian-made foreign liquor, country liquor, narcotics, molasses, rectified spirit, lottery tickets, brake fluid, tobacco gutka, unprocessed tobacco, bidis and tobacco used in making bidis and hookah tobacco, aerated drinks and watches costing above Rs 5,000, without convening a special Assembly session.
The AAP government has set a target of Rs 24,000 crore for the current fiscal year of 2015-16, Rs 5,500 crore more than the approximately Rs 18,550 crore raised last year. The decision may not go well with the Centre, since in March this year, it had asked state governments to reduce VAT on jet fuel to provide relief to the cash-strapped aviation sector. The price of ATF sold in the country is already 50 to 60 per cent higher than countries like Singapore and Dubai, because of the additional state VAT or sales tax implemented on it.
An aviation expert said that any state should not increase VAT further on jet fuel as that will affect this sector adversely. “The ATF accounts for up to 50 per cent of the operational cost of an airline as against 35 per cent globally. So, the flight tickets may go up to 2 per cent, which may not be very high. But given the Centre’s call states to slash VAT on jet fuel, it should not be increased any further.”
The expert, however, admitted that certain states implement much higher VAT on ATF, which if rationalised by states would bring down airline operational costs substantially. The domestic airlines are said to have spent an estimated amount of Rs 27,000 crore on ATF in 2013-14.
