The Civil Aviation Ministry has formally asked the Finance Ministry to bring aviation turbine fuel (ATF) under the ambit of GST at an applicable rate not higher than 12% with full input tax credit, as per a submission made by the Civil Aviation Ministry before a parliamentary standing committee.
“The issue of inclusion of ATF under GST has been a long standing issue and requires final resolution by the GST Council,” the committee has noted in its report which was tabled in Parliament on Friday.
This was after the Secretary, Ministry of Civil Aviation, apprised the Committee that the Ministry has taken up the proposal with the Ministry of Finance to bring ATF under GST for “coherence and simplicity in the tax regime” and that the matter is pending with the GST Council.
The Civil Aviation Ministry in its written note to the committee said the proposal is that applicable GST rate on ATF may be no higher than 12% with full input tax credit. “Output tax on sale of tickets both on business and economy air passenger transport services may be levied at a uniform rate of 12%. Output tax on air cargo transport, and ancillary services such as Catering, Premium Services and Services on Add-ons may be levied at 12%. Airlines may be allowed full input tax credit for GST paid on all goods and services,” the note said on the proposals.
The Ministry added that states have been requested “to provide full support” for bringing ATF within the GST’s ambit at the earliest during the deliberations on the matter in the GST Council, and during the period to reduce the VAT/Sales Tax on ATF at their airports. It said that in wake of the pandemic and its adverse fall-out on the airline industry, airlines had suggested that till ATF is placed under GST, VAT should be capped at 5% and the 11% excise duty should be eliminated.
The committee in its report seems to back the Civil Aviation Ministry’s case saying it takes “serious note” of the high ATF prices prevailing in the country which is “further aggravated by high taxes such as customs duty, excise duty, sale/State tax, Value Added Tax (VAT) levied thereon”. The report says the Committee understands that the cost of ATF nearly forms 40% of the total operating cost of airlines and impacts the financial viability of their operations and hurts their competitiveness because Indian carriers are unable to compete against the global airlines on account of the exorbitantly higher prices of ATF.
“The Committee is constrained to note that ATF prices in the country are distorted because it is subjected to multiple taxes by different entities. The airline industry is capital-intensive and works on very thin profit margins. This is why most Indian carriers are reeling under losses despite tremendous growth in air traffic. Therefore, relief on ATF is crucial for the viability of airline industry and would be a major incentive for airlines to augment their operations,” the report says.
Representatives of private airlines who deposed before the Committee said that Indian aviation fuel is taxed in the highest possible slab and no country in the world of equivalent size or equivalent aviation market taxes fuel at India’s rates. “In the written reply furnished by the Civil Ministry, it has been stated that cost of ATF is a formidable challenge for the financial health of airlines,” the committee report has noted.
The report says that the Committee is concerned to note that the State Governments have shown reluctance to reduce the VAT on ATF for flights other than those operated under UDAN scheme.
“The Committee is of the view that reduction in VAT on ATF would be a notional revenue loss for the States, which can be offset by enhanced economic activities, which would be the result of increased air connectivity to the region. The Committee desires that the Ministry may pursue this issue with the States, in order to rationalize and minimize the State level taxes/surcharges on ATF and bring much needed relief and help, to the airline sector,” the report says.
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