The Ministry of Civil Aviation has communicated to the Ministry of Commerce on to take steps to allow direct import of Air Turbine Fuel (ATF) by Indian carriers. The step in continuance of the verdict of the Group of Ministers’ (GOM) on Civil Aviation, which was taken in the GOM meeting, held on February 7, 2012. The GOM in its meeting adjudicated that the Ministry of Commerce will allow direct import of ATF by or on behalf of Indian carriers directly as the actual user and on actual use basis.
Why this decision was taken?
This decision was made because:
- ATF prices in India are 30 to 40% more than the prices in international market - Reason: Due to high base price and higher taxes in India
- The sales tax on ATF in various States in India is on much higher side, and varies b/w 4 – 30% in different States.
- The revenue from sales tax on ATF contributes only 0.5% to 2% of the total sales tax collection of the States while in terms of operational cost of the airlines its portion is almost 40%, which makes the operational cost of the airlines very high.
The Minister of Civil Aviation has also communicated to all CMs of the States in India to reduce the rate of sales tax on ATF in order to make ATF cheaper for the Indian carriers. Nevertheless, most of the States have not replied positively.
What next after the decision comes in favour of Indian Carriers?
- The Indian carriers would have to make their own associations with the suppliers having infrastructure to import ATF directly for their use.
- The sourcing of ATF via direct imports has the potency to bring down overall procurement cost of ATF for the airlines as sales tax varying from 4 – 30% in different States will be needed to be paid only on ineluctable local purchase.
- It will cut down the cost of working capital to the air lines as suppliers credit on lower interest rates will be viable.