IATA warns India on fuel tax

IATA has warned that high jet fuel taxes are killing off the Indian airline industry. IATA director general Tony Tyler made the warning as part of a call for a rethink on aviation policy in India.

15th Mar 2012


IATA has warned that high jet fuel taxes are "sucking the lifeblood" out of Indian Airlines. IATA director general Tony Tyler made the warning as part of a call for a rethink on aviation policy in India.

Speaking at the India Aviation 2012 conference in Hyderabad, Tyler said that fuel represents an average of 45% of costs for Indian carriers, compared to a global average of 32%. All fuel is subject to an 8.24% excise duty and domestic flights face state fuel taxes of up to 30%.

“The high cost of jet fuel has been hijacking the competitiveness of the Indian air transport industry for over a decade. It is now clearly recognized by all that fuel taxes are sucking the life blood from the Indian aviation sector. The industry is now in crisis and we need a coordinated effort among all Ministries—at national and state levels—to restore competitiveness,” said Tyler. Tyler also urged the removal of Service Tax on both tickets and on services that airlines purchase, to align with international principles and boost competitiveness.

On the perennial issue of infrastructure, Tyler highlighted the need for capacity expansion in Mumbai. “Mumbai is bursting at the seams. The first phase was meant to open in 2014 but construction has not even begun. Land acquisition is not yet complete. We need a coordinated effort across all government ministries to facilitate success without further delay—as was achieved for the opening of Delhi’s new terminal."

Tyler also urged the Ministry of Civil Aviation (MOCA) to intervene in the discussion of proposed charges increases at Delhi International Airport. “The new terminal and third runway have been a much needed boost. But if the 340% increase in charges over the next two years is implemented, it will make Delhi the most expensive airport in the world—and destroy its competitiveness,” warned Tyler.

Tyler urged the positive consideration of MOCA proposals to allow up to 49% direct investment by foreign carriers in Indian airlines. “This would allow strategic tie-ups with foreign airlines similar to arrangements that have successfully strengthened airline groups in other parts of the world. What is the public policy imperative of denying this possibility to Indian carriers?” questioned Tyler.

“But allowing foreign airlines to invest in Indian aviation is not a panacea. Without addressing the other three pillars—costs, taxes and infrastructure—it may only be a theoretical exercise. Under current conditions, the odds are stacked against any investor making a positive return on investment in the Indian aviation sector. And no one is likely to come forward unless they see themselves making a profit,” said Tyler.

Tyler said, “Indian aviation has tremendous potential to drive economic growth in the sub-Continent. But to realize this, India needs a common vision for aviation—expressed in a National Aviation Policy strongly linked to an implementation plan. Such a policy would need to re-build competitiveness by addressing the difficult issues of tax, cost, investment and infrastructure.”

 

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