Oil on fire, Goa, Tamil Nadu cut VAT on jet fuel

NEW DELHI: Amid surging crude prices, two key states on Friday finally relented by cutting VAT on aviation turbine fuel (ATF). Tamil Nadu reduced the rate from 29% TO 16% at Chennai; and to 1% at all other airports in the state. Similarly, Goa has reduced VAT from 15% to 7%. Most other states had much earlier cut taxes on jet fuel as the same has been rising relentlessly since the US-Iran war broke out this Feb.Tamil Nadu industries minister Virudhai Magal Keerthana said on X Friday: “We are reducing VAT on aviation fuel for domestic airlines from 29% to 16% at Chennai Airport, and to just 1% at other airports across Tamil Nadu. By slashing this, we are taking a decisive step towards making air travel more accessible and our 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.”Thanking Goa on X Friday, IndiGo said on X: “We sincerely thank Goa CM Pramod P Sawant for the progressive decision to rationalise VAT on ATF in the state. This is a welcome move towards strengthening the aviation ecosystem, enhancing air connectivity and supporting Goa’s vibrant tourism sector. We hope this progressive approach inspires others to consider similar measures, particularly at a time when ATF costs remain high, to help make air travel more accessible for customers. Thank you for your continued commitment to fostering growth and progress in aviation.”Airlines globally are finding it tough to remain airborne due to twin pressures of ATF price hikes and airspace closures. For Indian carriers, two other factors further aggravate the situation — rupee weakening with most costs like lease rentals and maintenance being dollar-denominated and closure of Pakistan airspace which has made the flights to and from west longer for them.The Federation of Indian Airlines (FIA), that has Air India, IndiGo and SpiceJet as members, had earlier this month warned govt they will be forced to cut flights on “unviable routes” as aviation turbine fuel prices are now at the highest level in a decade.“Fuel component historically constituted about 30% to 40% of airline operating costs. (It) has increased to about 55% to 60% under the prevailing circumstances. In addition, airspace restrictions have resulted in longer flight routes, leading to higher fuel consumption, increased crew costs, and lower aircraft utilisation. Airlines are also facing additional pressure from depreciation of the Indian rupee, as key expenses such as fuel, aircraft leases, maintenance, and insurance are US dollar denominated,” says a recent FIA SOS sent to the Union aviation ministry.FIA has urged an “urgent support to continue uninterrupted operations and provide air connectivity during these challenging periods.” It had sought ATF pricing on cost plus model; ATF excise duty relief; Key states to reduce VAT on ATF and extend concession on landing and parking charges. “Such measures would provide much-needed support to the aviation sector, help preserve affordable air travel for passengers, and enable airlines to continue contributing to India's economic growth and connectivity objectives despite the challenging operating environment. If timely relief is not available, the airlines may be compelled to withdraw from several unsustainable routes,” FIA letter says.The industry says the “unprecedented financial and operational challenges” “have severely strained airline liquidity and working capital, necessitating immediate got support.”You use AI every day. Now get your AI Quotient. Take the AIQ test.