The Tamil Nadu government, led by C. Joseph Vijay of Tamilaga Vettri Kazhagam (TVK), is considering lowering the State-level Value Added Tax (VAT) on Aviation Turbine Fuel (ATF). This move aims to cut airline operating expenses and enhance the competitiveness of the State’s aviation sector. The proposal is likely to be disclosed in the upcoming State Budget to bring Tamil Nadu’s tax structure more in line with neighboring States.
Officials familiar with the plan have indicated that the current 29% VAT on ATF in Tamil Nadu, which is among the highest in the country, is under review. The revised tax rate is anticipated to be revealed in the State Budget, although the exact percentage is still being determined.
The potential reduction in VAT follows persistent appeals from the Union government to States to rationalize taxes on aviation fuel. Airlines consider ATF as a significant operating cost, and industry stakeholders believe that reduced State taxes could lower expenses, enhance connectivity, and stimulate airlines to expand their services.
Data from the Union Ministry of Petroleum and Natural Gas presented to the Lok Sabha earlier this year underscores the significant disparity in ATF tax rates across southern States. For instance, Andhra Pradesh imposes only a 1% VAT, while Puducherry, Telangana, and Karnataka levy 14.5%, 16%, and 18% respectively. Kerala follows a distinct tax structure with a 5% sales tax and a 1% cess on the tax amount, along with additional taxes at its airports.
Tamil Nadu’s proposed tax adjustment aligns with the national trend of reducing taxes on aviation fuel. Recently, Maharashtra and Delhi decreased their VAT on ATF to 7% from 18% and 25% respectively. While Delhi’s reduction is temporary for six months, Maharashtra did not specify a time limit for the revised rate. If implemented, Tamil Nadu would join other States in rationalizing aviation fuel taxes, aiming to enhance airport competitiveness, support airline operations, and bolster air connectivity. The move would bring Tamil Nadu closer to neighboring States with lower ATF tax rates, making it a more appealing destination for airlines.
