State Governments apprehend that direct jet fuel import by domestic airlines could result in revenue loss of approximately Rs 3,000 crore.
The issue will now be discussed in detail during the meeting of the Empowered Committee of States' Finance Ministers, likely to take place this month end or early next.
Earlier this week, the central Group of Ministers at its meeting recommended direct import of jet fuel by domestic airlines. Such imports will not attract sales tax imposed by the States.
The sales tax rate varies between 4 and 32 per cent across the country.
Airlines complain that the high State tax along with central duties make the fuel very costly. Fuel consists of up to 40 per cent of their operational cost.
Mr Sushil Kumar Modi, Chairman of the Empowered Committee, and Deputy Chief Minister of Bihar, told Business Line , “It is a matter of concern and we think there could be a revenue loss.”
Maharashtra gets maximum revenue from jet fuel or Aviation Turbine Fuel (ATF) followed by Delhi.
When asked whether States can levy entry tax in lieu of sales tax, Mr Modi answered that it is too early to talk about that. “We may think of various options,” he added.
The Centre levies custom and excise duty on ATF after which sales tax is imposed. Since all the duties are levied as a fixed percentage of the value, any increase in the international market brings more money for the Centre and the States.
At present the three Government owned oil marketing companies revise the price every fortnight. The Empowered Committee had fixed the floor rate of sales tax on jet fuel for bigger aircraft at 20 per cent while for smaller aircraft it was 5 per cent.
This means States can easily levy a sales tax of more than 20 per cent on larger aircraft and above 5 per cent on smaller aircraft.
On the other hand, the Centre on a number of occasions wrote to the States to reduce the duty, but barring few, most of them did not responded favourably.
Other items on agenda
Mr Modi said that the Empowered Committee is also likely to discuss the issue of compensation in lieu of reduction of Central sales tax. There is delay and now some States, such as Maharashtra, are seeking a revision of the CST to original level of 4 per cent.
Such a tax is levied on trading of goods between States.