The Telegraph
Friday , December 28 , 2012
Since 1st March, 1999
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Jet fuel policy overhaul urgent

New Delhi, Dec. 27: The 12th Five Year Plan will aim to rationalise jet fuel prices and review taxes imposed on it to make airline operations more viable.

“A major difficulty being faced by airlines is the high cost of ATF (aviation turbine fuel or jet fuel), which is further aggravated by taxes. Viewed in inter-modal context, it is desirable to rationalise ATF pricing and to review the tax structure. The cost of ATF constitutes 4050 per cent of the total operating cost and thus is a formidable challenge for the financial health of airlines,” the Planning Commission said.

Jet fuel prices in India are subject to heavy taxation by different government entities despite it being an input fuel similar to coal and gas. “It is subjected to sales tax as high as 30 per cent. It is nearly 60 per cent costlier than competing hubs such as Dubai, Singapore and Kuala Lumpur and (this) hurts India’s competitiveness,” the Plan panel report said.

The Planning Commission has proposed that jet fuel be included in the unified goods and services tax (GST) or be accorded a “declared good status” that carries lower and uniform tax rate.

According to the panel, passenger terminal capacity in all airports, which stood at 230-240 million in 2012, will go up to 370 million by 2017. Cargo growth will necessitate investments in specialised terminals and equipment.

Independent estimates suggest an additional requirement of 30 airports by 2017 and about 180 airports in the next 10 years.

“Thus, growth in the passenger and cargo traffic requires significant investments for construction of new airports, expansion and modernisation of existing airports. There is also a need for improving road and sea links as well as better airspace management,” panel said.

The panel has estimated that private investors would infuse about Rs 50,000 crore in airport projects during the 12th Five Year Plan.

The panel also said that though India’s maintenance repair and operations (MRO) industry is expected to triple in size from Rs 2, 250 crore in 2010 to Rs 7, 000 crore per annum by 2020, it would still be smaller compared with the UAE (Rs 8, 000 crore per annum) and China (Rs 10, 000 crore).

“Given the growth of Indian aviation, it is logical to encourage MRO infrastructure to support the growth in the sector. A number of global ground-handling players have aggressive expansion plans in India. This would, however, depend significantly on supportive policies and requisite airport infrastructure development,” it added.