Tamil Nadu Chief Minister Vijay received rare praise from the Centre after his TVK government significantly reduced VAT on aviation turbine fuel (ATF), offering relief to airlines amid surging crude prices. Tamil Nadu cut the rate to 16% from 29% at Chennai, and to 1% at all other airports in the state. It earned Vijay swift applause from Civil Aviation Minister Ram Mohan Naidu.
"Appreciate the Tamil Nadu government's decision to reduce VAT on Aviation Turbine Fuel (ATF), a welcome step for the aviation sector. Thank you, Chief Minister Vijay, for this initiative," the Union Minister tweeted. Naidu underlined that such coordination between the Centre and states was crucial in making air travel more affordable.
"Making air travel more affordable requires the Centre and States to work together. Our shared priority must always be the passengers," he said.
Here, it must be remembered that ATF is outside the GST regime. Thus, states have the freedom to levy VAT at their own rates.
WHY CUT IN JET FUEL TAXES IS SIGNIFICANT?
It all boils down to the operating costs of an airline.
The fuel component usually constitutes about 30-40% of operating costs. It has now increased to about 55-60%. Jet fuel prices have been rising relentlessly since the US-Iran war broke out this February.
With the conflict showing no signs of ending anytime soon, airlines globally have been finding it tough to remain airborne due to twin pressures of ATF price hikes and airspace closures.
For Indian carriers, two other factors further complicate the situation - a weakening rupee and the closure of Pakistani airspace, which adds hours and more fuel burn for flights to Western nations. Lease rentals and maintenance are dealt in dollars.
Ahead of the festive season, the Federation of Indian Airlines, in a statement, warned the government they would be forced to cut flights on "unviable routes" as ATF prices had surged to the highest level in a decade.
The reduction in ATF taxes will lower the operating costs of airlines. It could also help moderate airfares, particularly on routes where the tax savings are substantial.
Against this backdrop, the move by the Vijay government to cut taxes on jet fuel is significant.
TAMIL NADU'S BIG RELIEF FOR AIRLINES
Announcing the decision on Friday, Tamil Nadu Industries Minister Virudhai Magal Keerthana said the move was a "decisive step" towards making air travel more accessible and regional airports more competitive.
"Lower operating costs can encourage airlines to introduce new routes, increase flight frequencies and expand operations beyond Chennai. We are building an aviation ecosystem that connects more regions, unlocks economic potential and powers Tamil Nadu's next phase of growth," Keerthana tweeted.
Three gazette notifications were issued by the TVK government on Friday.
One stated the reduction of jet fuel taxes at Chennai airport from 29% to 16%. At airports elsewhere in the state, the rate has been reduced drastically from 29% to 1%.
Thirdly, a separate concession will reduce VAT on fuel for smaller aircraft with a maximum take-off mass below 40,000 kg at airports outside Chennai from 5% to 1%.
The notifications will remain in force for one year, until October 31, 2027. It remains to be seen if airlines pass on the savings to the passengers.
Source: India Today