On AP cue, Kerala cuts ATF tax to 4 pc

Just over a fortnight after Andhra Pradesh the state with the highest sales tax on Aviation Turbine Fuel (ATF) took the lead and reduced it from 33 per cent to 4 per cent, Kerala has followed suit, cutting down tax on ATF from 32 per cent to just 4 per cent.

Civil Aviation Minister Praful Patel welcomed the move. "I welcome the decision of the Kerala Government. It will boost tourism and economic activity in the states, I wish other states will also take a cue from Andhra Pradesh and Kerala," he said.

The LDF Government in Kerala announced the tax cut in its Budget 2008-09, presented on Thursday, expressing hope that it would translate into lowering of fares. In fact, the Civil Aviation Ministry has long been appealing to the states to bring down sales tax on ATF and Minister Praful Patel had even personally exhorted them to do so in January this year during the National Civil Aviation Conference.

The move is good news for the airline industry as the ATF cost constitutes nearly 40 per cent of operational cost of carriers. The high sales tax had pushed many budget carriers into the red in the past. While the basic price of ATF itself on the higher side, it is further compounded by taxes like customs duty, excise duty and VAT.

The Ministry of Civil Aviation, besides asking states to reduce sales tax on ATF, had also approached the Finance Ministry demanding classification of ATF under 'Declared Goods' category, so that sales tax on ATF cannot be pushed up beyond 4 per cent by states.

The Finance Ministry, however, did not bring ATF under 'Declared Goods' category in this year's Budget.

While until recently Andhra Pradesh led the all India tally of sales tax on ATF at 33 per cent, followed by Kerala at 32 per cent, Gujarat was at 30 per cent, Bihar and Tamil Nadu at 29 per cent and Madhya Pradesh at 28.75 per cent. Himachal Pradesh, West Bengal, Chhattisgarh and Maharashtra are also quite high at 25 per cent sales tax on ATF. At the national conference, the Minister had mentioned Maharashtra, Delhi, Kerala, Tamil Nadu, Andhra Pradesh, West Bengal and Goa, for having a very high rate of tax on jet fuel.

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