Airlines Need Tax Relief
· Free Press Journal
India’s largest airline by market share, IndiGo, has reported a loss for the third consecutive quarter, hit by rupee depreciation and a sharp rise in fuel prices. Fuel prices are among the few variables an airline cannot control. Many other costs — including excise duty, airport charges and regulatory fees — are influenced by stakeholders, particularly the Government. Policy intervention can make a difference. Since Independence, aviation has often been treated as a luxury industry and taxed accordingly. That perception is outdated. Air travel has become one of the country’s most popular modes of transport, connecting businesses, families and smaller cities. The sector’s transformation gathered pace when Capt G R Gopinath pioneered the low-cost model with Air Deccan. Internet bookings and dynamic pricing made flying more accessible. The Government later opened airports to privatisation, encouraging infrastructure investment. Many are now facilities and, in some cases, destinations in themselves. Passengers are paying a growing share of the bill through user development fees (UDFs). These charges have risen by between 160 per cent and nearly 300 per cent over four years. International passengers often pay twice as much.
Airlines receive no share of the UDF, yet it adds to the cost of flying. Aviation turbine fuel (ATF) is subject to State-level value-added tax, with rates ranging from 2 per cent to 18 per cent. The burden is passed on to passengers. IndiGo’s fuel bill illustrates the issue. Central excise duty, at about 11 per cent, is a major nonmarket component. Where VAT is levied on the amount inclusive of excise, the duty accounts for roughly 10 per cent of the delivered fuel bill. Applied to IndiGo’s ₹9,967- crore fuel expenditure in the second quarter, removing the excise burden could save close to ₹1,000 crore a quarter — more than its ₹724-crore loss excluding foreign-exchange effects. Landing and parking charges add to operating costs.
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A 25 per cent reduction for the three months ending July saved the industry about ₹400 crore, demonstrating the impact of targeted relief. The Government may not influence global fuel prices, but it can reduce costs within its control. It should also review outdated regulations and clearance requirements that make it difficult for new airlines to enter the market. India generates revenue from aviation through airport privatisation, fuel taxes and user fees. But these measures do not make airlines viable. Carriers operate under intense cost pressure until they collapse. The country’s reputation as the graveyard of airlines will persist unless policy shifts from maximising collections to building a sustainable aviation ecosystem.