Union Civil Aviation Minister Jyotiraditya Scindia on Thursday hailed Maharashtra government's step to cut VAT on aviation turbine fuel (ATF) from 25 per cent to 18 per cent at one of India's biggest aviation hubs - Mumbai - along with Pune and Raigad.
In a scenario of high fuel prices, this step will prove to be a catalyst in efforts to ramp up air connectivity, he said. Indian carriers have time and again raised the issue of high operating costs primarily due to steep ATF prices.
"I thank Maharashtra CM @mieknathshinde Ji & Depy CM @Dev_Fadnavis Ji for taking the progressive decision to reduce VAT on Air Turbine Fuel from 25% to 18%.
In a scenario of high fuel prices, this step will prove to be a catalyst in our efforts to ramp up air connectivity," the Civil Aviation Minister said in a series of tweets.
"With this, Maharashtra joins the league of total 19 States/UTs that have rationalised VAT rates in the last 1.5 years. Alongside enhanced connectivity for Mumbai, Pune & Raigad, this will also make travel more affordable, and boost growth," he added.
The issue of reduction in Value-Added Tax (VAT) on ATF was taken up with states/Union Territories levying high VATs on ATF and many of them reduced the tax on aviation fuel in the last many months.
Recently, ICRA said that despite a healthy recovery in passenger traffic, the domestic aviation industry continues to face challenges on account of elevated ATF prices and depreciation of the rupee vis-a-vis the US dollar, both of which have a major bearing on the airlines' cost structure.
Fuel costs account for 30-40 per cent of the airlines' expenses, while 35-50 per cent of the airlines' operating expenses - including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses - are denominated in dollar terms, it said.