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Telangana government keen on making Hyderabad an aviation hub with ATF tax cut

The government expects the move to help Hyderabad attract players in the Indian aviation sector, which is going through turbulent times.

, ET Bureau|
Updated: Jul 14, 2014, 12.19 PM IST
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The government expects the move to help Hyderabad attract players in the Indian aviation sector, which is going through turbulent times.
The government expects the move to help Hyderabad attract players in the Indian aviation sector, which is going through turbulent times.
HYDERABAD: The Telangana government is keen on making Hyderabad an aviation hub by slashing taxes on airline fuel -a move that is expected to lure airlines into moving a bulk of their operations to the city.

The value-added tax on jet fuel currently stands at 16% and slashing it to 4% will make Telangana among the few Indian states to do so. States that reduced tax on jet fuel include Gujarat, Orissa, Madhya Pradesh, Chhattisgarh and West Bengal.

The government expects the move to help Hyderabad attract players in the Indian aviation sector, which is going through turbulent times, to choose the city as the centre for their operations.

Indian jet fuel costs are among the highest in the Asian region accounting for nearly 50% of airlines' operational costs. The Telangana government's resolve to slash ATF taxes comes at a time when the Karnataka government is also reportedly looking at cutting taxes on jet fuel to 4%. Low-cost airline AirAsia recently moved its base to Bangalore from Chennai.

“The in-principle decision to slash taxes on ATF is primarily aimed at attracting low-cost airlines to move their base to Hyderabad and promote the city as an aviation hub so as to drive economic activity and attract investments into the new state,“ a senior Telangana cabinet minister told ET, requesting anonymity .

He said “a formal announcement on this is expected shortly.“ Kapil Kaul, South Asia CEO at the Centre for Asia Pacific Aviation, said the Telangana government's decision on ATF taxes would make GMR Hyderabad International Airport turn more competitive. “The competition among southern airports is intense and Telangana's decision will be followed by other southern states,“ said Kaul. The Union government has been urging state governments to bring down surcharge and taxes on aviation fuel.

In its pre-budget memorandum, the Indian civil aviation industry had appealed to the NDA government to include jet fuel in the “declared goods“ category so that the sales tax on it comes down to around 4%. The Telangana government has estimated the immediate tax loss with the decision to be about Rs 100 crore but hopes the move will have a sizeable positive impact on its economy. “The Telangana government views that the move to slash taxes on ATF would help improve air connectivity and brand Hyderabad, which would have significant positive impact on several key sectors,“ said the minister quoted above.

The Telangana government, which successfully attracted the joint venture of Tata group and Swiss aerospace and defence firm RUAG Aviation to set up aircraft manufacturing facility involving Rs 1,000 crore of investment last month, is now looking at attracting more aerospace investments. “The state government views that growth in air connectivity and aviation would also drive the capital and manpower-intensive maintenance, repair and overhaul industry to Hyderabad, which contributes significantly to the exchequer,“ said the minister.

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