MUMBAI: In a major relief to airlines, the Maharashtra state government in its budget presented on Thursday announced a reduction in Value-Added tax (VAT) levied on Aviation Turbine Fuel (ATF) to 18 % from the current 25 % in Mumbai, Pune and Raigad. With this VAT on ATF has been brought down to 18 % in two of the top three airports of India.
Mumbai being the second busiest airport in India, the seven percent drop in VAT is expected to bring considerable savings for airlines. In Delhi though, the busiest airport in India, VAT on ATF continues to be high at 25 %. In December 2021, VAT on ATF charged in India's third busiest airport, Bengaluru, was brought down to 18 % from 28%.
Civil aviation minister Jyotiraditya Scindia tweeted that with the said reduction Maharashtra has joined the group of 19 states, union territories that have rationalized VAT rates in the last year and a half. “Alongside enhanced connectivity for Mumbai, Pune and Raigad, this will also make travel more affordable and boost growth,” Scindia tweeted.
In India, ATF is heavily taxed and typically accounts for about 45 % of an airline’s operating cost. When ATF prices hit a high in June last year, it was priced at Rs 120 per litre in Mumbai. That along with a weakened rupee had hit airline yields in the past one year. Despite the high airfares, airline industry is estimated to post a net loss of Rs 110-130 billion in the April 2022-March 2023 period, according to credit rating agency ICRA.
Following efforts by the ministry, VAT was brought down to 5% in Gujarat and 18 % in Karnataka. Apart from this it has been brought down to 1-4% in Andaman and Nicobar Islands, Uttarakhand, Jammu & Kashmir, Ladakh, Himachal Pradesh, Tripura, Madhya Pradesh, Haryana, Uttar Pradesh, Dadra and Nagar Haveli, Daman and Diu, Arunachal Pradesh, Manipur, Jharkhand and Mizoram.
