Aviation Turbine Fuel likely to come under GST soon

One of the major demands of airline companies in the last few months has been the persistent demand to bring aviation turbine fuel (ATF) under the ambit of Goods and Services Tax (GST). Currently, petrol, diesel, natural gas and ATF are among the products that have been kept out of GST. Like in the old system, they continue to attract central excise duty and then state level levies and Value Added Tax (VAT) on top of that.

Things did not really pinch when the going was good. But in the last couple of years there has been a double whammy. Firstly, the spike in COVID cases resulted in severe restrictions on flying leading to low passenger load factors (PLF) and negative spread between RASK and CASK. The second big challenge has been the price of crude spiking up to $97/bbl, up nearly 30% since the start of 2022, amidst rising geopolitical tensions.

One argument of the airline companies; and now even the Civil Aviation Ministry has joined the chorus, has been that the current system of central excise plus state levies creates a cascading effect on ATF. At a time when the airline companies are already under so much stress, this is not a burden they can afford. One way out is to bring them under the ambit of 18% GST so that the pricing of ATF becomes more predictable in the future.

Now, the government has promised to shortly announced a formula for bringing ATF under the ambit of GST. However, the formula is likely to be tweaked to ensure that the states also buy into this idea. The GST Council is likely to suggest 18% GST on ATF in addition to VAT charged by the states. Of course, this will still be subject to the acceptance of the various states who are part of the GST Council, before inclusion of ATF under GST can take effect.

Check - ATF May Come Under the Ambit of GST

It needs to be remembered that the VAT rates would vary from state to state and it really needs to under a stress test to see how much positive impact it would have on the final price of ATF in India. Finance Minister Nirmala Sitharaman has promised to take up the issue of inclusion of ATF under GST for debate in the next meeting of the GST Council, which is slated to happen in the month of March and will be the last GST Council meet for FY22.

According to the Central Board of Indirect Taxes and Customs (CBIC), this hybrid model of charging GST by the centre and VAT by states for ATF is not unique to India as there are global precedents and this formula has worked perfectly in several countries. To that extent, this formula will be in line with the global best practices. The recent 5.2% rate hike of ATF in India has made flying all the more prohibitive for the airline companies in India.

ATF is not politically sensitive, unlike diesel and petrol, hence it has gone through 4 price hikes in 2 months. Today ATF costs Rs.90,520/KL in Delhi and is among the highest in the world, with domestic flyers bearing the brunt, while international flights pay a lot lower. Ironically, ATF prices were just about Rs.71,028/KL when crude was $147/bbl in 2008. Hopefully, the inclusion of ATF under GST should ease the burden on troubled airlines.