Tamil Nadu government considers VAT cut on aviation fuel to boost airlines

The Tamil Nadu government is exploring a reduction in the Value Added Tax (VAT) on Aviation Turbine Fuel (ATF), currently set at 29%, in a bid to align with lower rates in neighbouring states. According to a government official, the revised rate is likely to be announced during the State budget presentation.

Neighbouring States Offer Lower Rates

Data from the Union Ministry of Petroleum and Natural Gas highlights stark differences in VAT rates across southern states. Andhra Pradesh charges just 1%, while Puducherry imposes 14.5%, Telangana 16%, and Karnataka 18%. Kerala has a complex structure, with a 5% sales tax, a 1% cess, and additional levies at its airports. Tamil Nadu’s current rate stands significantly higher by comparison.

Union Push for Tax Rationalisation

The move follows repeated calls from the Union government for states to lower VAT on ATF, citing its critical role in reducing airline operating costs. In recent months, Maharashtra and Delhi slashed their rates to 7%, with Delhi’s reduction set to last six months initially. Tamil Nadu’s decision could provide relief to an aviation sector grappling with rising fuel costs and operational uncertainties amid geopolitical tensions in West Asia.

Airlines Burdened by High Fuel Costs

ATF constitutes 40-45% of operating expenses for Indian airlines, making VAT rates a significant factor in determining profitability. Union Minister for Civil Aviation Kinjarapu Rammohan Naidu has previously urged states to address the issue, noting that 19 states and Union Territories have already reduced VAT following the Ministry’s intervention.

Potential Boost for Regional Aviation

Former Union Minister Jyotiraditya Scindia, during a visit to Chennai last year, had publicly appealed to Tamil Nadu to lower its VAT rate. He argued that such a move would attract more airlines to the region, stimulating growth in the aviation sector. With Tamil Nadu among the few states maintaining VAT rates in the 20-30% range, a reduction could position the state as a more competitive hub for air travel.

The anticipated announcement in the State budget could mark a pivotal shift in Tamil Nadu’s approach to aviation fuel taxation, with potential benefits for airlines and passengers alike.

Source: The Hindu