To give impetus to air travel, Union Minister for Civil Aviation Jyotiraditya Scindia has written a letter to 22 states and Union territories (UTs), urging them to rationalise the value added tax (VAT) on aviation turbine fuel (ATF) across all airports in states within the range of 1-4 per cent.

He has asked them to take forward the common intention to boost air travel and connectivity in the state with a view to accelerate its economic development.

The price of ATF is a major component of the operating cost of airlines, and with that, the tax on ATF contributes significantly to the ATF price. Addressing this issue would enable a force multiplier effect with regard to air connectivity in states.

Citing examples of progressive states such as Kerala, Andhra Pradesh, Meghalaya, Nagaland, Sikkim, and Telangana, the Civil Aviation Minister wrote that they have brought down the VAT to 1 per cent. As a result, they have seen a substantial jump in the number of aircraft movements within their states.

For example, the Government of Kerala has brought down VAT on ATF from 25 per cent to 1 per cent. Subsequently, the number of aircraft movements at Thiruvananthapuram airport increased from 21,516 flights to 23,566 flights in a span of six months. This is an increase of 2,050 aircraft movements after the reduction of VAT.

Similarly, aircraft movements at Hyderabad airport saw a rise from 76,954 flights to 86,842 flights in a span of six months, which is an increase of 9,888 aircraft movements after the reduction of VAT on ATF from 16 per cent to 1 percent.

Many other states, such as Andhra Pradesh, Chhattisgarh, Nagaland, Odisha, Punjab, and Sikkim, have followed suit.

The Minister brought to the attention of the states that air connectivity directly promotes tourism growth, output growth, and employment generation, in addition to various indirect benefits to the economy.

In fact, the aviation sector has a high output multiplier of 3.25 and employment multiplier of 6.1. Presently, there is a huge disparity between states, and even within states, in terms of VAT being levied on ATF.

Given the challenges that have arisen due to Covid-19, the Minister emphasised the need to reduce the existing VAT/sales tax on ATF to 1-4 per cent at all airports with immediate effect.

Besides, it is worth noting that the revenue collected by the state on account of VAT on ATF is an insignificant proportion of the overall state finances. In any case, this will be more than offset by the positive impact of the air connectivity to the state through the flow of economic activities.

The 22 states/UTs to which the Minister wrote include Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Madhya Pradesh, Mizoram, Rajasthan, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh, Jammu and Kashmir, National Capital Territory of Delhi, Ladakh, Andaman Nicobar, and Dadra and Nagar Haveli and Daman and Diu.