GST-proposed as a part of new aviation policy

Dated 16th November, 2014

The BJP-led government is looking to include aviation turbine fuel (ATF) in the list of products to be covered by the proposed goods & services tax (GST), ensuring uniform tax on the fuel across all states.

Jet fuel in India is almost 60 per cent higher than other countries and represents 40-50 per cent of a carrier’s operating costs. Besides, the tax imposed on the fuel by the state is steep, averaging around 30 per cent.

Officials in the aviation ministry said they were working with the finance ministry to bring the fuel within the ambit of GST as part of the new aviation policy.

States have been demanding that all petroleum and alcohol products should be excluded from GST so that they can continue to levy taxes on them.

“We want jet fuel to be part of the GST. This will reduce taxes on the fuel by a huge margin and at one stroke, make aviation profitable in this country,” said the officials.

The GST regime aims to replace multiple state and central levies with a single tax regime.

For the year ended March this year, the country’s top five domestic airlines reported combined losses of Rs 9,737 crore, an increase of 85 per cent over Rs 5,276 crore in the previous year.

Aviation analyst Robin Pathak, a former Indian Airlines director, said, “Most of the losses were because of a spike in jet fuel prices and a huge fall in the value of the rupee. The two factors drove down profitability for the entire industry.”

Jet Air saw its losses increase more than seven times to Rs 3,668 crore in 2013-14 from Rs 485 crore in 2012-13.

SpiceJet’s losses jumped more than five times to Rs 1,003 crore in 2013-14 from Rs 191 crore in the previous fiscal.

In a presentation to the civil aviation ministry, the Centre for Asia-Pacific Aviation pointed out that “the volatility of such a significant cost input (jet fuel) on this scale makes it extremely difficult to plan cashflow and working capital requirements. Rationalisation of sales tax on fuel to a flat rate of 4 per cent will immediately result in a cost saving of $700-800 million”.

However, the Centre will have to first persuade the states to bring jet fuel in GST. States are not willing to give up differential taxation on petroleum goods.

“States earn a large chunk of their own revenue from petroleum goods and consequently do not wish to give up this right. To get them on board even for jet fuel will require a lot of persuasion. One way will be to make it clear that increased flights from states, which every state has been demanding, can only come once the tax regime is conducive to fleet and operation expansion,” said Amit Bannerjee, an independent Singapore-based merchant banker.