Airlines losses fuelled by higher taxes

Taxes and duties levied by governments—central and states—increase jet fuel cost by 50% in India, compared with neighbouring countries like Pakistan

The airline industry in India is in the doldrums today. While there are several issues, including politics, which are obstructing the smooth flights in the country, one of the major problems are higher taxes and fluctuation in the prices of aviation turbine fuel (ATF) or jet fuel.

For any airline, fuel cost constitutes about 30%-40% of its total expenditure. However, it is higher taxes levied by the central government and state governments, which increases prices of ATF to one of the steepest across the world. In addition, there is huge fluctuation in ATF prices.

 Earlier, while speaking with PTI, civil aviation minister Ajit Singh had said that jet fuel costs in India are about 50% higher compared with cities like Singapore and Sharjah. "Most of this is partly because ATF is not a 'notified product' which the oil regulator can check. Therefore, the pricing is not transparent," he had said.

Notified products or declared goods attract a uniform sales tax of 4% as against 20% to 30% levied by the governments.

Pricing mechanism, especially for ATF is influenced to benefit the government. The ATF price is calculated after adding freight charges from Gulf to India, countervailing duty of 8% (as the customs duty on ATF is abolished), Basic CENVAT (excise) duty of 8% and sales tax from state governments ranging from 16% 30%. In addition, there are refinery margins, domestic transportation charges, marketing margins of oil companies and throughput charges paid to the airports.

Last week, Indian Oil Corporation (IOC) reduced ATF prices by 5%, one of the steepest cut since February 2010. This brought the ATF prices to December 2011 levels. At present ATF in Delhi costs Rs62,409.95 per kilolitre, while the same costs Rs63,178.34 in Mumbai. Earlier, in August 2008, jet fuel prices hit its highest rates owing to the record crude price of $147 per barrel in international markets.

IOC, along with two other state-run companies, Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) revise ATF prices every fortnight on 1st and 16th, based on average international prices of crude oil in the preceding fortnight.

Every day, IOC alone caters to over 1500 flights, from bustling metros to remote airports in the country.

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