The Treasury Department has not yet taken a position on the Civil Aviation Department’s plea for tax cuts on jet fuel or jet turbine fuel (ATF) to lower prices, a top source said Wednesday.
Civil Aviation Minister Jyotiraditya Scindia has made a case for lowering the high taxes on ATF, even though most states have already taken steps to significantly reduce value added tax (VAT).
“They (Ministry of Civil Aviation) have approached us with a plea to moderate prices. However, no decision has been made yet,” said the source.
The Ministry of Civil Aviation remains in talks with the Finance Minister about the matter, the source added.
As many as 23 states have lowered taxes on aviation fuel from 20-30 percent. And now it wants the central government to cut excise taxes.
ATF makes up about 40 percent of an airline’s operating expenses. Jet fuel prices are at an all-time high in line with the global rise in energy prices. And since India is 85 percent dependent on imports to meet its oil needs, the only way to lower jet fuel prices is to cut taxes.
While BJP-ruled states have cut VAT, the states with the country’s busiest airports, Delhi, Mumbai, Chennai and Kolkata, have not yet done so.
ATF is currently taxable at an ad valorem excise tax rate of 11 percent. ATFs sold under the Regional Connectivity Scheme are subject to a concessional rate of 2 percent.
Ad valorem rate means that the tax burden rises when the base price rises.
Some in the industry have demanded that the government introduce specific excise duties, denominated in Rs per kiloliter, to protect airlines from such volatility.
A certain excise rate is already levied on petrol and diesel.
ATF draws both excise tax from the central government and sales tax or VAT from states. This is because when the Goods and Services Tax (GST) was introduced on July 1, 2017, which merged 17 central and state levies, five commodities – namely crude oil, natural gas, gasoline, diesel and ATF – were excluded from their jurisdiction given the revenue dependency of the state governments of this sector.
The Department of Aviation has searched time and again for inclusion of ATF under GST. The Department of Oil has also favored including ATF along with natural gas under the GST regime to help companies settle taxes they pay on inputs.