High value-added tax (VAT) rates on aviation turbine fuel (ATF) imposed by certain States contribute significantly to increased airfare, said Union Civil Aviation Minister, Ram Mohan Naidu.

Addressing concerns raised by members of Parliament on fluctuating airfares, the Minister cited that a “significant portion,” approximately 45 per cent is attributed to ATF costs.

“There are some States which are charging up to 29 per cent VAT on the ATF, and Tamil Nadu is one such State which has the highest ATF in the country,” he stated during the question hour in the Parliament on Thursday.

He highlighted that while 15 States have reduced VAT on ATF to below 5 per cent, others continue to impose higher rates, adversely affecting airline operations and passenger fares.

States asked to reduce VAT

To resolve the situation, the Minister has proactively reached out to Chief Ministers across States, urging them to reduce VAT on ATF.

“When they are talking about airfares, I would request the honourable members of those representing States to find out how much ATF the States are charging and bring it down as 45 per cent of the airfare prices is because of the ATF and the VAT that is charged,” he said.

businessline on Tuesday reported that Minister Naidu has urged Delhi Chief Minister, Rekha Gupta to slash VAT on ATF by 1 to 4 per cent.

At present, Delhi has a high rate of 25 per cent VAT on ATF for general flights, while the rate is four per cent on jet fuel sold for regional flights.

Besides, the Minister emphasised various other factors influencing airline pricing, including demand and online booking platforms.

He reiterated that India follows a globally accepted dynamic airfare pricing model, where airlines determine fares based on demand and market competition.

Furthermore, he clarified that while the government does not regulate airline ticket prices, it actively monitors tariffs through the Directorate General of Civil Aviation (DGCA).

“There is a tariff monitoring unit in the DGCA which looks after the airfares prices, and the tariff sheet which the airlines have to provide to the DGCA before the start of every season.”

Recently, airfares to and from Prayagraj last month witnessed an exponential rise due to high demand.

Similarly, spikes in airfares have been observed on routes serving locations that host major events, such as cricket matches or concerts.

Additionally, the Minister stressed the importance of increasing competition in the aviation sector to drive down fares.

He pointed out that the government has expanded the aviation network, increasing the number of airports from 74 to 159 and the aircraft fleet from 340 to 840, with 1700 aircraft orders in the pipeline.

“Now what we have to improve is the connectivity. And there are only a certain number of planes in the country. In 2014, we used to have around 340 planes. Now at least we have increased the number up to 840,” he said.

In addition, he stated that with the proposed ratification of the Cape Town Convention, aircraft leasing costs are expected to decrease by 8-10 per cent further benefiting passengers by making air travel more cost-effective.

businessline was the first to report that in January 2025, the Union Cabinet approved the Protection and Enforcement of Interests in Aircraft Objects Bill, 2024, to usher in further reforms in the civil aviation sector.

The bill is designed to lower leasing and financing costs for airlines.

At present, the bill is before the Rajya Sabha and is expected to be passed within the next session of Parliament, which is expected to begin on March 10, 2025.

Related Topics