IGI Airport: Stakeholders urge Delhi govt to reduce VAT on jet fuel

Key civil aviation stakeholders have urged the Delhi government to reduce the value-added tax (VAT) on aviation turbine fuel (ATF) to between one and four per cent. This move aims to lower airfares and maintain strong connectivity to and from the national capital’s IGI Airport.

At present, Delhi levies a VAT rate of 25 per cent on ATF for general flights from IGIA, while the rate is four per cent on jet fuel sold for regional flights. While, the VAT at Hindon airport is about one per cent on ATF, a similar rate will be applicable at the upcoming Noida International Airport, too, thereby creating a disadvantage for IGIA.

Consequently, stakeholders including Civil Aviation Minister Rammohan Naidu have urged Delhi’s Chief Minister Rekha Gupta to slash VAT on ATF by 1 to 4 per cent.

In a letter dated March 19, the Minister said the revenue collected from VAT on ATF is an insignificant proportion of the overall State finances and “in any case any shortfall in revenue collection due to reduction in VAT on ATF will be more than offset by the positive impact of the air connectivity to the State through the increased flow of economic activities”.

Besides, Naidu pointed out that civil aviation sector is “very price sensitive” but at the same time air connectivity directly promotes tourism growth, output growth and employment generation, in addition to various indirect benefits to the economy.

Also, he cited that the price of ATF is a major component of the operating cost of airlines and that the VAT contributes significantly to its overall price. Per industry estimates, ATF prices constitute over 33 per cent of the total operating cost of an airline.

The Centre, through the Ministry of Civil Aviation, has been urging the GST Council to bring ATF under the ambit of GST at the earliest.

Tax disadvantage

“For the continuing financial health of domestic airlines, it is important to eliminate the tax disadvantage faced by them vis-a-vis competing foreign carriers. Our ministry has also pursued the matter of reduction of VAT on ATF with various States or UTs. I am happy to recall that many State or UT governments have reduced State VAT on ATF and currently 25 States or UTs have reduced VAT rates to around 1 to 4 per cent, signaling their interest in attracting air connectivity to their State. However, Delhi continues to be one of the few States/UTs to have a high rate of 25 per cent VAT on ATF for general flights which needs to be rationalised further for all flights at par with the other states i.e. in the range of 1 to 4 per cent.”

In addition, he said that Noida airport in Uttar Pradesh is expected to commence its “operations soon and the applicable rate there would be 1 per cent VAT on ATF against 25 per cent at Delhi airport”.

“This will impact Delhi airport due to prohibitive cost difference of ATF to airlines thereby making Delhi airport uncompetitive, depriving level playing support. This will clearly affect the offtake of ATF in Delhi airport and may affect the revenue of Delhi Government,” Naidu said.

On its part, industry body Assocham also urged the Delhi government to reduce VAT on ATF. It stated that unless the VAT is brought down to 1 per cent, Delhi airport “will become uncompetitive forcing airlines to shift to new airport at Noida.”

The industry body further stated that as per the economic study conducted by independent body NCAER (National Council of Applied Economic Research) on Delhi Airport, “they came out with an outcome of direct, indirect-induced economic contribution of about 18 per cent to Delhi State economy, besides huge employment opportunities.”

The proposal to reduce VAT on ATF comes at a time when apprehensions are high on escalation in airfares to and from IGIA as a result of an upcoming tariff order for new user development fee (UDF).

Notably, industry insiders feel that the move to reduce VAT on ATF can dampen any impact that might arise due to higher UDF rates. At present, the Airports Economic Regulatory Authority of India (AERA) is considering IGIA’s new UDF proposal which is meant for the fourth control period, starting from April 1, 2024, to March 31, 2029.