DELHI / MUMBAI
Air fares may go up in the coming days with the Union Budget proposing to increase excise duty on jet fuel to 14% from the current 8%.
Jet fuel is the biggest cost for airlines constituting as much as over 50% of total operating costs. Many airlines returned to profits in 2015-16 after years of losses with the decline in global oil prices over the past year.
As per industry experts, the actual impact of the tax measure will be even higher, since sales tax is calculated over and above excise duty at present. State-level sales taxes vary between 4% and 30%. Airlines have been lobbying for lower sales tax for over a decade. The impact will thus be cumulative.
In 2015, Brent crude fell 35% and so far this year, it has dropped 5.4%. However, airlines will face more heat when oil prices start to rise. On 20 January, Brent crude hit a low of $27.88 and since then, it has gained over 26.4%.