NEW DELHI: The Centre is seeking state-level tax cuts on jet fuel as a surge in global prices and disruptions in West Asia squeeze airline finances.
The ministry of civil aviation is in discussions with state governments to reduce tax on aviation turbine fuel (ATF), currently ranging between 1% and 29%, a senior ministry official said. “We are writing to states to bring down state tax on jet fuel. It would give some relief considering the price hike of fuel in recent times,” the official said.
Fuel is the single largest expense for airlines, accounting for 35–40% of operating costs. Prices have risen sharply in recent weeks amid the conflict in West Asia, driving up costs for carriers.
Jet fuel prices climbed to $209 per barrel for the week ended 3 April, up 117.8% from $95.95 per barrel in late February, according to International Air Transport Association (IATA) data. Crude oil prices have also surged, rising from $67.02 per barrel at the end of February to $115.85 per barrel on 7 April, as the conflict between the US, Israel, and Iran escalated.
Taxes add to the burden. ATF carries an 11% excise duty levied by the Centre, along with state-level taxes that vary widely, creating cost disparities depending on where airlines refuel. At present, five states levy value-added tax (VAT) of 18% or higher on jet fuel, while 31 states keep it between 1% and 5%. Airlines have long argued that high state taxes distort operating economics.
“State taxes on jet fuel have varied and is a historical pain point for airlines. Previously the Centre had taken it up with state governments and some did bring down rates significantly. In the current context, it does help airlines manage a part of their fuel costs, and bring down expenses,” said G.S. Bawa, secretary general, Air Travellers Association.
Limited respite
Even so, the relief may be limited. Earlier this month, state-run Indian Oil Corp. rolled back an over-100% increase in jet fuel prices for domestic airlines within hours, limiting the hike to about 8.5% in New Delhi. The ministry of petroleum and natural gas said the partial increase was aimed at insulating carriers from a fuel price shock amid disruptions in global energy markets.
The move is part of a broader effort to contain costs. The Centre has also capped domestic jet fuel price hikes by oil marketing companies at 25% starting April. However, prices for international routes remain market-linked and have nearly doubled, straining finances.
Airlines, meanwhile, have begun passing on higher costs. IndiGo and Air India have revised fuel surcharges, moving from a flat surcharge imposed in mid-March to a distance-based structure starting April.
Carriers are also seeking broader support. In earlier discussions with the ministry, airlines requested a waiver of parking charges at Airports Authority of India-run airports, a reduction in route navigation charges, and greater stability in fuel pricing.
“We are working on significant measures to support (aviation) industry. (The) ministry is coordinating with other stakeholders,” Asangba Chuba Ao, Joint Secretary, Ministry of Civil Aviation, said during a presser on Tuesday.
Bawa said, the demand by airlines to rationalise costs like airport charges and parking charges is opportunistic. “Not more than 4-5% of their expenses are incurred because of these charges. But in the present scenario, they are pushing for relaxation on these too,” he said.
Operational pressures are also mounting. Several countries in West Asia have imposed airspace restrictions, affecting nearly 50% of Indian carriers’ capacity on international routes.
"There is of course pressure on airlines," Ao said. Cancellations have "impacted their (airlines) revenue," he added.
More than 10,000 flights to West Asia have been cancelled since 28 February, Ao said. Average daily flights (both ways), which earlier stood at 300–350, have dropped sharply to 80-90, underscoring the scale of disruption.