Domestic air fares in India could come down by as much as 25 per cent if excise duties are lowered and sales tax is capped at 4 per cent.

However, the government will still not lose any revenue as its own savings in air travel bills will be enough to compensate for the loss in the resulting revenue, a report by management consultancy group KPMG says.

In a presentation made at the behest of the Bombay Chamber of Commerce on tax policy options for the tourism sector, Sudhir Kapadia, director, KPMG said, "Air travel facilities have been extended to most government  officials."

"Other senior officials including ministers, IAS/allied officers, MPs, MLAs and defence personnel are entitled to travel by air. The government pays for officials travelling on duty. Other government officials  including the public sector undertakings and defence services, at senior positions are entitled to travel by 2nd AC or 1st AC."

Kapadia added that as at both the centre and state levels, lower taxes would imply lower fares, which in turn would imply lower government expenditure, this would 'offset losses due to reduction in taxes.'

What's more, lowering airfare to the level of 1st AC rail fare and upgrading the entitlement to travel by air would actually fill up the vacancies in the domestic flights, thereby increasing the government's revenue, he added.

Currently, a majority of government representatives travel by state-owned carriers Indian Airlines and Air-India.

The KPMG report further pointed out that domestic prices of aviation turbine fuel are 2.5 times higher than the rates applicable globally owing to an unwieldy tax structure on the fuel.

Consequently, both Air-India and Indian Airlines currently source a significant portion of their ATF requirements from alternative hubs like Singapore, Dubai, etc. resulting in heavy losses in foreign exchange.

Currently, states in India charge an average sales tax of 20-30 per cent on large aircraft. Andhra Pradesh is the only state which has lowered tax rates to 4 per cent from 30.55 per cent recently.