Article Posted on : - Nov 19, 2008

Indian aviation industry in doldrums. File photo

NEW DELHI (PTI): A high-level Committee has asked the Civil Aviation ministry to find ways and means to ensure reduction in air fares, and the Finance ministry to rationalise taxes on jet fuel to help the beleaguered airline industry.

The Committee, headed by Cabinet Secretary K M Chandrasekhar, which is studying the severe financial crunch faced by the airline industry, asked the Finance ministry on Tuesday to examine the pros and cons of making jet fuel a 'declared good' to bring down its prices and help the ailing aviation industry come out of the red, official sources said.

The inclusion of aviation turbine fuel (ATF) in the list of declared goods would allow imposition of a flat four per cent tax on it across the country. The taxes, including state sales tax, raise the ATF price by almost 30 to 40 per cent.

The Committee expressed concern over the "drastic" fall in passenger traffic and asked the Civil Aviation ministry to look into the possibility of lowering airfares, not only to increase traffic but also to ensure connectivity.

The Civil Aviation ministry made a pitch for rationalising taxes on ATF so as to bring them down to international levels. The cost of jet fuel in India is almost 45-50 per cent higher than that in several foreign cities, including Singapore, Dubai, Bangkok and Hong Kong.

Maintaining that ATF constituted 45-50 per cent of the operational costs of an airline, the sources said though its prices have come down, the international crude market was very volatile. The combined losses of Indian airlines, caused primarily by the high fuel cost, were estimated to rise from about Rs 4,000 crore in 2007-08 to Rs 10,000 crore in 2008-09.

Steps were, therefore, required to rationalise the taxation structure to bring the prices close to international levels, they said, adding that domestic jet fuel prices were about 50 per cent higher than those in international stations.

Therefore, a recommendation was made to include ATF in the list of 'declared goods', the sources said.

Another major factor affecting the financial health of the industry was the weakening of the rupee against the US dollar, the sources said, adding that substantial payments by the domestic airline industry were made in dollar terms in areas like rentals for leased aircraft, spare parts, maintenance, foreign crew (mostly pilots) and training.

They also pointed out that due to the financial meltdown, corporate travel, as well as leisure travel, in both international and domestic sectors has gone down, adversely affecting the industry's health.

Following deliberations by the Committee, the five per cent customs duty on ATF has already been abolished.

Besides the Cabinet Secretary, the Committee comprises the Secretaries of Finance, Revenue, Petroleum and Civil Aviation ministries, the Planning Commission Secretary, HDFC Chairman Deepak Parekh and senior IIM Ahmedabad Professor Raghuram.