Delhi International Airport Ltd (DIAL) has reached out to both the Civil Aviation Ministry and the Delhi Chief Minister, requesting an urgent review of the Value Added Tax (VAT) on Air Turbine Fuel (ATF). They caution that the existing tax structure could undermine the competitive edge of the national capital’s main airport.
Central to these concerns is a stark variation in tax rates: Delhi imposes a 25% VAT on jet fuel, whereas neighboring Uttar Pradesh charges a mere 1%. This disparity could drastically influence airline strategies once Jewar becomes fully operational.
According to airport officials, the calculations are straightforward yet impactful.
- ATF price in Delhi per tonne: ~₹96,000
- VAT in Delhi (25%): adds ~₹24,000
- VAT in UP (1%): adds only ~₹960
This results in a significant cost difference per flight, especially for narrow-body aircraft, which use approximately 4 tonnes of fuel for a Delhi-Mumbai route—totaling ₹96,000 per flight in Delhi compared to ₹3,840 at any Uttar Pradesh airport.
Airlines, operating on very slim margins, are particularly sensitive to such cost fluctuations. Reduced fuel taxes at Jewar might encourage airlines to fuel there or gradually shift their operations.
The airport operator has further cautioned that there will likely be a notable diversion of traffic once Jewar reaches full capacity.
“This could lead to an expected traffic shift of 13–16% from IGI Airport to other lower-tax airports in the vicinity, especially the new Jewar Airport,” DIAL mentioned in its letter.
This shift would not only affect airport revenues but also challenge Delhi’s status as a key aviation hub.
DIAL emphasized that fuel taxation is not merely a financial matter but a strategic one that influences hub competitiveness:
“A cost-competitive fuel environment is crucial for any airport aiming to function as a hub.”
The letter also underscores IGI’s economic importance, citing an independent evaluation:
“The airport contributes 17.89% to Delhi’s GSDP and supports over 150,000 jobs.”
Call for urgent parity
DIAL has appealed to the Delhi government to bring ATF VAT in line with neighboring states to avoid a structural disadvantage.
“We sincerely request a reduction in VAT on ATF in Delhi from 25% to ideally within the 1% to 4% range, in accordance with the UP Government’s policies.”
The operator asserts that this adjustment would help maintain Delhi’s hub status while aligning with national aviation objectives.
Why this matters now
The urgency of the request is underscored by the timing. With the inauguration of Jewar airport and commercial operations on the horizon, airlines may adjust their network and cost strategies accordingly.
Fuel typically constitutes 30–40% of airline operating expenses, but in fluctuating situations, costs can soar, making tax discrepancies between airports increasingly appealing.
Ultimately, what may seem like a tax policy issue could significantly alter airline economics and airport competition in North India.
