"My request to you all will be that you should take up with your government to reduce VAT," Singh told State government representatives who had gathered in Delhi to discuss reducing the levy, improvements in air connectivity and development of low-cost airports. "ATF constitutes nearly 40-50 percent of operating cost. Prices are increasing due to very high VAT," he said, adding that the domestic airline sector posted losses worth Rs 9,771 crore in the last fiscal 2012-13.

The sector also has a debt of around Rs 85,865 crore. Fuel prices comprise about 50 percent of the operating costs of airlines in India and have dented the sector as major airlines bleed under the high state sales tax regime.

The high state taxes are a legacy of a long-standing perception that ATF, which is a super-refined form of kerosene, should not be subsidised for air travel. However, the Indian government continues to subsidise sensitive products like diesel, LPG (liquefied petroleum gas) cylinders and kerosene. Currently, ATF sold in the country is nearly 50-60 percent costlier than in overseas markets like Bangkok, Singapore or Dubai as an additional 4-34 percent state sales tax hikes the price.

The high fuel cost and weak economic environment has led to SpiceJet reporting a 10 percent fall in net profit in the first quarter of this fiscal, which stood at Rs 50.55 crore, down from Rs 62.44 crore in the corresponding quarter of 2012-13. Jet Airways reported a net loss of Rs 355.38 crore in the first quarter of the current fiscal, from a net profit of Rs 24.70 crore in the same period of 2012-13.

With such high operating costs, three major airlines Air India, Jet Airways and budget carrier SpiceJet have hiked passenger fares by up to 25 percent on domestic routes. Singh took the example of states like Chhattisgarh, Madhya Pradesh, West Bengal and Jharkhand that have reduced VAT to gain increase in air travel and other positive economic multiplier effects that come with growth in the sector.


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