GST to incentives: Centre working on plan to reduce ATF prices to compete with global hubs

New Delhi: The central government is looking at ways to reduce the prices of aviation turbine fuel (ATF) in India by, among other options, building consensus to bring it under the goods and services tax, as it seeks to make the country a competitive aviation hub.

The strategic plan involves discussions with states to reduce taxes and allowing tax incentives for key stakeholders including airlines and oil companies, according to three people in the know of the developments. Compensation for states may also be considered to make up for the loss in revenue, the people said on the condition of anonymity.

Ministries of civil aviation, petroleum & natural gas and finance and have been tasked with working out a solution to address the price disparity of ATF in the country, the people said.

Jet fuel in India is about 60% costlier than the key refuelling hubs of Dubai, Singapore and Kuala Lumpur because of higher taxes.

Since ATF costs make up almost 40% of the operating cost of airlines, bringing prices down can help boost air traffic. That dovetails with the government’s objective of boosting India’s aviation sector by adding airports, pushing local manufacturing and developing MRO (maintenance, repair, and overhaul) facilities.

Also read | Aviation industry upset over jet fuel prices, seeks tax sops

While bringing the fuel under goods and services tax (GST) could bring prices down and make them competitive, petroleum products—including petrol, diesel, natural and ATF—have been kept out of the ambit of GST as they are key revenue sources of states.

A lot of refuelling traffic flies over India and can be tapped, according to Mark D. Martin, chief executive officer of aviation strategy firm Martin Consulting. "Benefits should be given to both domestic and international airlines in order to keep a level-playing field."

Speaking to Mint, secretary to the ministry of civil aviation, V. Vualnam, said: “We are directly engaged with the ministry of petroleum. The pricing mechanism was initially completely opaque, but now it is transparent. However, the prices are still higher than global trends. We are working to ensure that they are rationalized. This will take some time.”

Also read | It’s sky high: The effect of surging prices of jet fuel

A senior official at in the Department for Promotion of Industry and Internal Trade (DPIIT), speaking on the condition of anonymity, said, "We are hoping for a positive outcome, as a competitive cost structure can make the Indian aviation market more attractive to foreign airlines and investors, potentially leading to partnerships, joint ventures, and greater foreign direct investment (FDI)."

GST Conundrum

ATF is costlier in India because of higher taxes. ATF prices currently attract value added taxes (VAT), and central and state excise duty. VAT varies from 1% to 30% across states. Amid efforts to make jet fuel cheaper, about 31 states and union territories have already lowered the levy to the range of 1-5%, while five tax it at 20-30%.

In July, the union minister for petroleum and natural gas Hardeep Singh Puri had said the ministry would work towards bringing petrol, diesel and ATF under GST. The decision on bringing a commodity under GST regime would require approval from the GST Council, which includes finance ministers from all the states.

Also read | Disquiet at airlines as govt pushes for greener jet fuel

Queries sent to the union ministry of petroleum & natural gas and finance and commerce and industry remained unanswered till press time.

State-run oil retailers revise ATF prices every month. On 2 September, the price of ATF in Delhi for domestic airlines was cut 4.58% or ₹4,495.5 per kilolitre to ₹93,480.22 per kilolitre as crude prices cooled globally amid concerns about a slowdown. Brent has declined over 20% in the past one year to trade below $75 a barrel.

“Aviation is a key economic driver and contributor for the country which has been burdened under taxes and there is an urgent need to boost support it,” said Mark D. Martin, chief executive officer of aviation strategy firm Martin Consulting. “The industry has for long been demanding rationalization of VAT. GST would have softened the situation. It is high time tax rationalization is done.”