In a rare move, the Tamil Nadu government significantly reduced the VAT on aviation turbine fuel, offering relief to airlines amid surging crude prices as tensions in the Middle East are disrupting the supply chains.
Chief Minister Vijay received rare praise from the central government for his move on considering the pressure faced by airlines. Tamil Nadu cut the rate to 16% from 29% at Chennai and 1% to all other airports in the state.
Civil Aviation Minister Ram Mohan Naidu praised Vijay for the rare yet appreciable move.
“Appreciate the Tamil Nadu government’s decision to reduce VAT on Aviation Turbine Fuel (ATF), a welcome step for the aviation sector. Thank you, Chief Minister Vijay, for this initiative,” the Union Minister tweeted.
Naidu underlined that such coordination between the Centre and states was crucial in making air travel more affordable.”Making air travel more affordable requires the Centre and States to work together. Our shared priority must always be the passengers,” he said.
The decision was announced by the Tamil Nadu government on Friday. Tamil Nadu Industries Minister Virudhai Magal Keerthana said it was a ‘decisive step’ towards making air travel more accessible and regional airports more competitive.
“Lower operating costs can encourage airlines to introduce new routes, increase flight frequencies and expand operations beyond Chennai. We are building an aviation ecosystem that connects more regions, unlocks economic potential and powers Tamil Nadu’s next phase of growth,” Keerthana tweeted.
Do states have the right to decide VAT on ATF?.
It is worth noting that ATF prices are outside the GST regime and therefore states have the freedom to levy VAT at their own rates.The government issued three gazette notifications, one stating the reduction of the jet fuel taxes at Chennai airport. At airports elsewhere in the state, the rate has been reduced drastically from 29% to 1%.
Thirdly, a separate concession was announced to reduce VAT on fuel for smaller aircraft with maximum takeoff mass below 40,000 kg at airports outside Chennai from 5% to 1%. The notification will remain effective until October 2027.The fuel component, which usually contributes to 30-40% of the operating costs, has now increased to 55-60%.
Jet fuel prices have been rising relentlessly ever since the U.S.-Iran war began in February this year. With the conflict showing no signs of ease, airlines globally have been finding it difficult to remain airborne due to twin pressures by the ATF price hikes and the airspace closures.
For Indian carriers, the other two factors complicating the situation are weakening rupee and a closure of Pakistani airspace, which adds more hours to the journey and more fuel burn for flights to Western nations. Lease rentals and maintenance are dealt in dollars.
Ahead of the festive season, the Federation of Indian Airlines in a statement warned that the government would be forced to cut flights on unviable routes as ATF prices have surged to the highest level in a decade.Gutenberg ready format with key phrases and tags.