MOSCOW, October 11 (RIA Novosti) - The director general of Aeroflot, Russia's largest airline, proposed Tuesday that value added tax (VAT) on air traffic and aircraft purchases be canceled to raise the competitiveness of Russian airlines.
"We need to eliminate monopolies in air transportation, to change tax administration and cancel VAT on air traffic," Valery Okulov said, addressing an aviation forum in Russia.
He cited the example of the United States, where there is no VAT and aircraft taxation.
"All countries promote their products, which makes it beneficial for both producers and buyers," Okulov said.
He said 19 out of 35 major Russian airlines had announced cuts in passenger traffic.
"The price of an economy class ticket has increased by 20% and is now 6,000 rubles ($210). This is a higher figure than in Europe. The 4% drop in cargo turnover reduced traffic by 1%," Okulov said, adding that traffic increase was 15% in 2004.
He said the situation around Russian airlines' competitiveness was aggravating.
"The administrative reform in aviation has not been completed, and all sectors are not harmonized. We are 30-60% behind our competitors in terms of fuel and economic indices," he said. "We have to pay a 40% tax to buy a plane. All these put together are hampering the development of the Russian aviation sector."
He said foreign passenger airlines had 17% of the Russian market in 2003, and 19% in 2004.
"In 2004, foreign airlines cemented their positions on the Russian market, which cannot be described other than expansion," Okulov said.
He also said the European Union and the United States pursued a tough policy toward Russian airlines and "are trying to impose their own rules."
Okulov said Russian air traffic increased by 2%, and foreign companies' by 11% in the first six months of 2005.
He said Russian airports also had to be modernized as part of a federal program to increase the competitiveness of Russian airlines.