In a bid to lower costs and to improve regional connectivity, domestic airlines have suggested that the finance ministry should lower sales tax on aviation turbine fuel (ATF) used by regional jets to 4% from the present rate which varies between 4% and 39%. The airline companies have demanded that ATF used in regional jets should be brought under the list of ‘declared goods’ –– on the same lines as the concession provided to turboprop aircraft.

The Federation of Indian Airlines has written to the finance ministry that the sales tax for all regional aircraft should be fixed at par with the 4% sales tax that is currently charged for turboprop aircraft. Civil aviation ministry too has pitched for reduction of sales tax on fuel used by regional jets.

While turboprops enjoy substantially lower sales tax at 4%, regional jets — deployed for similar functions — cost higher as the sales tax concession is not available. Regional jets pay between 4% and 39% for their fuel needs.

Airline firms have argued that this disparity is not helpful for the promotion and good health of India’s regional carriers. There is no clear reason as to why different sales tax is levied on the basis of type of aircraft. Industry analysts argue that turboprop consume less fuel as compared to regional jets. This could be one of the reasons for the existing disparity.

However, industry heads say that their is a case for correcting this disparity as it would result in lower input costs for airlines. This, in turn, will translate into lower fares and better connectivity. ATF is the single highest cost element for airline companies accounting for over 40% of their total costs. “80-seater regional jets should also be brought under the declared goods category along the lines of TurboProp. It will boost regional connectivity while reducing costs of airline companies,” Centre for Asia-Pacific Aviation CEO Kapil Kaul said.

Earlier, the Naresh Chandra Committee –– set up in 2003 to prepare a roadmap for the civil aviation sector –– has also recommended that for smaller aircraft, the government should do away with the existing discrimination based on the type of aircraft and, accordingly bring parity in taxes on ATF for jets and turbo-prop aircraft with maximum certified capacity of less than 80. Now, the finance ministry will have to take a call on the subject and a final decision on the subject is likely to emerge in the forthcoming Budget.