Concerned over high service tax substantially raising air ticket prices, Civil Aviation Minister Ajit Singh has urged Finance Minister Pranab Mukherjee to revert to the earlier rates which were capped at Rs 100 and Rs 500 per domestic and international ticket.
Noting that jet fuel prices in India were significantly higher than in most parts of the world due to high tax rates, he
under the 'Declared Goods' category to attract a uniform lower rate of Value Added Tax (VAT).
Regarding the new rates of service tax on tickets, Singh, who has written a letter to Mukherjee, said "I have requested Hon'ble Finance Minister to revert back to the earlier rate of service tax on domestic as well as international tickets."
He said that after the latest budget, service tax was being levied on 40% of the gross value of an air ticket, instead of ten per cent earlier. This lower tax amount was also capped at Rs 100 for a domestic ticket and Rs 500 for an international ticket, he said.
"The change to ad valorem rate of taxation without having any cap is a retrograde step, particularly at a time when we are advocating specific lower rate of duty for VAT on ATF by the states," Singh said, adding India was amongst few countries that levied service tax on air tickets.
Observing that the increase in service tax would make the air travel costlier, he said a 10% rise in the price reduces the demand for domestic air travel by about 12%, as per the price elasticity of demand calculations.
"This would definitely spell more trouble for the airline companies which are already reeling under tremendous stress due to existing inviable operating environment," he said.
Observing that the increase in service tax would make the air travel costlier, he said a 10% rise in the price reduces the demand for domestic air travel by about 12%, as per the price elasticity of demand calculations.
"This would definitely spell more trouble for the airline companies which are already reeling under tremendous stress due to existing inviable operating environment," he said.
Regarding the high jet fuel cost, the Minister said it constituted approximately 40-50% of the total operational expenses of Indian carriers.
Singh said the Indian airlines were extremely sensitive to jet fuel prices "as it adversely affects the viability of air transport operations in the country".
The average ATF price at major airports in India was also "significantly higher" than those in other hubs like Singapore, Hong Kong, Dubai, London and Abu Dhabi, he said.
Noting that the Civil Aviation Ministry had commissioned an expert agency to study the ATF market, he said the major reason of the high ATF price was the taxation regime, particularly ad valorem VAT levied by states ranging from 20
to 30 per cent.
Singh said the Indian airlines were extremely sensitive to jet fuel prices "as it adversely affects the viability of air transport operations in the country".
The average ATF price at major airports in India was also "significantly higher" than those in other hubs like Singapore, Hong Kong, Dubai, London and Abu Dhabi, he said.
Noting that the Civil Aviation Ministry had commissioned an expert agency to study the ATF market, he said the major reason of the high ATF price was the taxation regime, particularly ad valorem VAT levied by states ranging from 20
to 30 per cent.
There was also lack of effective competition in the ATF market with the oil marketing companies maintaining ownership of and control access to the infrastructure also, he said.
Maintaining that the experts had recommended reforms to promote competition and bring in transparency in ATF pricing, he said the first step was to bring it under "Declared goods" category that attract uniform lower rate of VAT.
The experts' agency had also proposed switching to specific rate of duty instead of ad valorem taxation of ATF.
Along with this, the Petroleum and Natural Gas Ministry should bring ATF under the scope of the Petroleum and Natural Gas Regulatory Board's (PNGRB) so that action could be taken to protect consumers' interests.
Similarly, all ATF-related infrastructure outside airports, like pipelines and intermediate storage infrastructure, would also have to be regulated by the PNGRB,he said. (curtsey : money control)
Maintaining that the experts had recommended reforms to promote competition and bring in transparency in ATF pricing, he said the first step was to bring it under "Declared goods" category that attract uniform lower rate of VAT.
The experts' agency had also proposed switching to specific rate of duty instead of ad valorem taxation of ATF.
Along with this, the Petroleum and Natural Gas Ministry should bring ATF under the scope of the Petroleum and Natural Gas Regulatory Board's (PNGRB) so that action could be taken to protect consumers' interests.
Similarly, all ATF-related infrastructure outside airports, like pipelines and intermediate storage infrastructure, would also have to be regulated by the PNGRB,he said. (curtsey : money control)
Rupesh Yatesh Dalal
Head Research Department
Head Research Department
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