New prices for aviation turbine fuel (ATF)—the fuel used in airplanes—will come into effect from April 1, and this time, things aren’t looking too good. Rising international crude oil prices have already indicated that inflationary pressure is going to increase further. Since ATF prices are updated on the 1st of each month, the effect of the ongoing conflict was not reflected in the rates announced on March 1 (the beginning of the war); But, now the situation has changed a lot.
Currently, due to continuing tensions in West Asia, international crude oil prices have increased, and the Indian rupee has also weakened. All these factors combined have created the perfect environment for ATF prices to rise. If ATF becomes expensive, its direct impact will be visible on your airfare. The operating expenses of the airlines will increase, and ultimately the common traveler will have to bear the burden of this increased expense. Whether you’re planning to go on a vacation, have to catch an emergency flight, or have to travel suddenly for any reason, your budget can go haywire.
Higher ATF prices mean higher ticket prices: how does this calculation work?
On the first of every month, the three major oil marketing companies—IOC, BPCL, and HPCL—combine to decide new ATF prices. The final price that airlines have to pay is calculated by adding the base price, central excise duty, state-level VAT (value added tax), and dealer commission. The special thing is that ATF alone accounts for 30 to 40 percent of the total operating expenses of an airline; This means that even a small increase in ATF prices directly increases the airline’s expenses—and this burden is ultimately passed on to the passenger in the form of higher ticket prices.
State-level VAT: This is where the real catch lies
The most important factor affecting ATF prices is state-level VAT (or sales tax). For example, Maharashtra charges around 25 percent VAT on ATF, while Delhi charges more than 20 percent. In contrast, states like Andhra Pradesh and Telangana have reduced their VAT rates to just 1 percent—a move that has led to a rapid increase in air activity in those areas! As a result, the exact same fuel—ATF—may be quite expensive in Mumbai, while cheaper in Hyderabad; The only reason for this is the difference in taxes between states. This presents a unique challenge because the central government, despite its intentions, cannot intervene directly to regulate the specific tax rates of these states.
At present, ATF does not come under the purview of Goods and Services Tax (GST). Like petrol and diesel, the right to tax ATF also rests with the respective state governments. Therefore, even if the central government wishes to influence these rates, it cannot directly determine the VAT on ATF; She can only make appeals or recommendations to the states. This is why the Aviation Minister is preparing to write letters to the Chief Ministers of different states, in which they will request to reduce VAT on ATF. Separate letters will also be sent to the finance departments of the respective states.
Airport charges will be reviewed
The aviation ministry says it is exploring options keeping in mind the interests of all three stakeholders—airlines, passengers and airports. In this context, a meeting will also be held with airport operators to review the various charges levied on passengers; Its purpose is to provide relief in other areas to compensate for the rising fuel prices.