The Delhi government is considering proposals to revise the tax and cess rates on petrol, diesel, aviation turbine fuel (ATF), and natural gas, multiple officials told Moneycontrol.
"Proposals to reduce value-added tax (VAT) on petrol, diesel and ATF are being considered with a decision likely to be made by the end of April," a senior official from the Delhi government said.
He added that the Delhi government is also looking at ways to manage its revenue collections from Goods and Services Tax (GST) and VAT and reduce tax rates. The Delhi government's revenue collections for 2024-25 were below the budget projections.
ATF tax likely to be cut to 10% from 25%
"In order to make sure revenue collections do not take a big hit, the government is working with the central government to ensure the correct formula to reduce tax rates and manage revenue for 2025-26," another senior government official said.
Fuel make up nearly 40-45 percent of the operating costs for an Indian carrier. Indira Gandhi International Airport (IGIA) in Delhi is India's busiest airport, handling over 73.6 million passengers in FY24, including 19 million international travellers - a 24 percent increase from the previous year.
He added that, as part of the proposals being considered by the Delhi government, the state might cut VAT on ATF to 10 percent from the current 25 percent.
Emails sent to the Ministry of Civil Aviation (MoCA) and the office of Delhi chief minister remained unanswered till the time of publishing this report.
Competition from Jewar airport
The greenfield airport at Jewar in Uttar Pradesh is expected to be the second aviation gateway for the capital, and its location might make it the preferred airport for those living in the eastern suburbs of Delhi and its satellite townships.
The airport is expected to start commercial flights later this year. With a benefit of 1 percent VAT on ATF, it will become the preferred spot for refuelling of aircraft, which, in turn, is a matter of concern for the GMR-operated Delhi airport.
Last month, the GMR Group-managed Delhi International Airport Ltd (DIAL) that operates IGI Airport had said that passenger growth is expected to slow down over the coming years, due to capacity constraints and emerging competition.
Slowdown at DIAL
DIAL had said it expects the slowdown to stem from two factors: the airport is nearing its peak capacity as well as the impending launch of the Noida International Airport (NIA) in Jewar, Uttar Pradesh, which is expected to divert some traffic.
“As capacity constraints limit Delhi Airport’s ability to meet demand, certain traffic is expected to spill over to the NIA. The NIA is expected to compete for IGIA’s market share, and it is expected to have more passengers from eastern Uttar Pradesh and parts of Haryana with lesser travel time to NIA in comparison to Delhi Airport,” DIAL had said in a consultation paper last month.
Delhi’s higher VAT on ATF, coupled with DIAL’s higher user development fee (UDF), when compared to Noida airport, also limits the ability of airlines to reduce airfares on domestic routes operating from the national capital.
Last week, senior executives from DIAL had said that they are in discussions with the Delhi government to reduce VAT on ATF in the state in order to maintain air passenger traffic growth in the state.
"There has been pressure to reduce aviation fuel taxes, because Delhi is possibly one of the highest taxed state as far as ATF is concerned. We have made representation to the government, and, from what I hear, the MoCA has also represented and requested the Delhi government to reduce tax on ATF. We are expecting that, over a few months, it will be a much better level-playing field as compared to some of the neighbouring states and that will help reduce overall passenger airfare as well," Videh Kumar Jaipuriar, chief executive officer of DIAL, said on April 11.
The Union government had also urged the Delhi government to slash VAT on jet fuel from 25 percent to 4 percent, citing lower levies in 25 other states and Union territories, including Uttar Pradesh, which will likely operationalise a new international airport in the national capital region at Greater Noida.
The appeal was made by civil aviation minister Ram Mohan Naidu in a letter dated March 19 and addressed to Delhi’s chief minister Rekha Gupta.
Similarly, the Chamber of Trade and Industry (CTI) had also written a letter to the chief minister, urging a reduction in VAT on ATF to prevent a shift of passengers to Noida's Jewar Airport.
CTI Chairman Brijesh Goyal had said that the high VAT on ATF in Delhi is making flight operations costlier, which could lead airlines to prefer the Jewar Airport. Industry body Assocham also urged the Delhi government to reduce VAT on ATF, stating that unless the VAT is brought down to 1 per cent, Delhi airport will become uncompetitive, forcing airlines to shift to the new airport at Noida.
While the Delhi government did not announce a rate change in the state's Budget, presented last month, the state government is now looking at proposals to boost revenues in order to move forward with the revision in tax rates for ATF.
The Uttar Pradesh government had, in December 2024, cut VAT on ATF to 1 percent in order to make Noida Airport a competitive aviation hub.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
