Chennai, July 20: The Tamil Nadu government is preparing to reduce the state-level Value Added Tax (VAT) on Aviation Turbine Fuel (ATF). This initiative aims to lower operating costs for airlines and enhance the competitiveness of the state’s aviation sector.
The proposal is expected to be announced in the upcoming state budget, as part of efforts to align Tamil Nadu’s tax structure with neighboring states. Officials familiar with the matter revealed that the government is reviewing the current 29 percent VAT on ATF, one of the highest rates in the country. The new rate is anticipated to be disclosed as part of the state budget, although the exact percentage has yet to be determined.
This proposed reduction comes in response to repeated appeals from the central government, urging states to rationalize taxes on aviation fuel. ATF constitutes one of the largest operating expenses for airlines, and industry stakeholders have long argued that lower state taxes would help reduce costs, improve connectivity, and encourage airlines to expand their services.
Data presented in the Lok Sabha earlier this year by the Ministry of Petroleum and Natural Gas highlighted significant disparities in ATF tax rates across southern states. Andhra Pradesh imposes only a 1 percent VAT, while Puducherry charges 14.5 percent, Telangana 16 percent, and Karnataka 18 percent.
Kerala has a different tax structure, applying a 5 percent sales tax along with a 1 percent cess on the tax amount. Additionally, the state’s four airports—Thiruvananthapuram, Kochi (Nedumbassery), Kannur, and Kozhikode—charge 1 percent tax and a 1 percent cess.
Tamil Nadu’s proposed move comes amid a broader national trend of reducing taxes on aviation fuel. About two months ago, both Maharashtra and Delhi cut their VAT on ATF from 18 percent and 25 percent to 7 percent, respectively. While Delhi implemented this reduction for an initial six-month period, Maharashtra has not set a timeline for the new rate.
If enacted, Tamil Nadu will join the ranks of states rationalizing taxes on aviation fuel. This step is expected to enhance the competitiveness of the state’s airports, support airline operations, and strengthen air connectivity. Furthermore, this decision will bring the state closer to the lower ATF tax systems of neighboring states, which have long been considered more attractive destinations for airline operators.
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