Aviation Sector Asks Government to Cut Taxes on Jet Fuel

Indian aviation industry on Tuesday asked the government to slash taxes on jet fuel, exempt aircraft engines from customs duty and rationalise taxation of MROs, as the BJP-led dispensation prepared for the general budget for 2014-15.

Senior airline MRO (maintenance, repair and overhaul) and other aviation industry officials made their case on these and other issues at a pre-budget meeting with Civil Aviation Secretary Ashok Lavasa in Delhi, industry sources said.

A similar meeting was convened by Directorate General of Civil Aviation (DGCA) chief Prabhat Kumar on Monday.

The meetings are apparently in preparation for the Civil Aviation Ministry's briefing for Prime Minister Narendra Modi in the next few days.

Among the major demands was including aviation turbine fuel (ATF) in the 'declared goods' category so that sales tax on it comes down to about four per cent from the prevailing rates ranging from 28 to 35 per cent across the country, though some states like Chhattisgarh, Jharkhand and West Bengal impose only four per cent.

Airline officials present at Tuesday's meeting said that while ATF was supplied to small aircraft like Bombardier's Q-400s or turboprop ATRs as 'declared good' and charged around 5 per cent tax, larger aircraft weighing over 40,000 kg were levied up to 35 per cent sales tax.

Jet fuel constitutes about 40-45 per cent of the total cost of an airline.

The airlines also sought exemption of aircraft engines from customs duty, the officials said, adding that the exemption which was withdrawn in 2012 should be reinstated.

The government should either put ATF in the 'declared goods' category or reduce excise duty on it from 8-10 per cent to zero, Aeronautical Society of India's council member, Debashish Saha, who was part of industry delegations, suggested.

Mr Saha said the issues relating to ATF and customs duty exemption for engines would "not only help the airline industry in improving profitability but also bring smiles to passengers who have to bear the cost of fuel surcharge levied by the airlines".

At the meeting, MRO representatives said that the prevailing high taxation regime had made Indian MROs 20-30 per cent costlier than those abroad, leading the airlines here to repair their aircraft in foreign countries, including Sri Lanka and Singapore.

Service tax at the rate of 12.36 per cent was charged from Indian MROs, though the airlines servicing their planes abroad were not charged anything, the officials said, seeking exemption from this tax.

A VAT of 12.5-15 per cent, levied on MRO service providers, was imposed on the sale price and not on the cost price, they said, seeking zero rate of VAT be imposed.

The airlines also said that Section 10 (15-A) of the 1961 Income Tax Act, which exempted airlines from levy of income tax on aircraft lease rentals issued by foreign lessors, was withdrawn in 2007 and withholding tax imposed.

The officials demanded that the section of the IT Act should be restored to provide benefit to the cash-strapped industry.

The aviation industry officials also said that service tax was imposed on passenger service fee (PSF) collected by airlines on behalf of the airport operators.

Recovery of PSF should not be subject to service tax as it was not being charged towards services of air transportation provided by the airlines, the officials said.