• Today is Monday 21 Jan 2019
Sign in

By signing up, you agree to our

Terms of service

Privacy Policy||Cookie Policy

Lost your password?

By signing up, you agree to our

Terms of service

Privacy Policy||Cookie Policy

Feedback | Equityright Wealth Creator       

Social Connect:

A A A
Sep 04, 2018, 15:15
Aviation Turbine Fuel might come under GST umbrella. Aviation sector will get the boost it desperately needs
img

As the Aviation turbine fuel (ATF) surged, the Indian aviation sector and the Civil Aviation Ministry urged the government to include jet fuel within the ambit of the goods and services tax (GST). This move would get an annual relief to the listed Indian airlines of Rs. 3,000 crore - Rs. 5,000 crore in taxes. The inclusion of ATF under GST might bring a glee to the aviation sector that contributes a third of a carrier’s total expenses.


But assuming that the GST council accepts the proposal to include ATF under GST, the overall tax rate on aviation turbine fuel for domestic flights might plunge from about 40% now to 28% —the highest GST slab. A curtail in tax rates would lead to a loss of revenue for state and the central governments, which have been unenthusiastic to abstain income from the tax on fuel.


India’s largest fuel retailer, Indian Oil Corporation Limited, surged prices of ATF by 7% to an average of Rs. 71,245 a kilolitre across India. The final price comprises of a state value-added tax ranging from 20% to 30% and 14% central excise duty.


Crude oil, natural gas, diesel, petrol, and ATF were excluded from the GST given the intricacy in taxation and disagreement among the state government due to the loss of revenue on account of the shift from the current tax rates. To stabilize and provide some alleviation to the gas and aviation companies, the GST council considered the inclusion.


Presently, the central government charges 14% excise duty on ATF. The state government charges up to 30% sales tax or VAT - Tamil Nadu taxes ATF at 29%, Odisha and Chhattisgarh have 5% VAT, Karnataka at 28% and Maharashtra and Delhi at 25%.


Presently, natural gas is levied according to the old taxation regime ranging from 5% to 26%, which differs from state to state. LPG is taxed at 5% under GST. AFT is charged up to 40%, which varies from state to state. ATF comprises about 35%-40% of the operational cost of an airline in India.


Exclusion of ATF and natural gas under GST has impacted volumes and profits of the companies in the sector as well as the industry. The multiple tax systems have led to escalating cost and dual compliance pressures. The expenditure for gas companies and aviation sector has uptick due to the non-availability of input tax credit. This has plunged margins and sales volume.

 

 


The inclusion of ATF and other gas products under GST regime will be a win-win situation for both gas companies as well as the companies using gas as a raw material. The leading gas companies will enhance due to the improved volume of taking and diminished costs. The tax rate the airlines pay is above the highest GST slab of 28%, which differs from state to state.


Currently, the aviation sector pays state sales tax or VAT that range from 4%- 30% and excise duty of 14%. To cover up the tax revenue shortfall the government might adjust the tax rate with the imposition of a certain additional cess. The impact of a standard tax rate across states might boost the tax collections on ATF by nearly 7%.


The aviation sector can expect an alleviation of Rs.3,000 crore-Rs.5,000 crores annually if the government includes ATF within the ambit of the GST.  The standardized tax rate would provide a freedom of procurement across the country and would further help companies salvage logistic costs. If the proposal is implemented, it brings in positive returns for the companies and the government and boosts the economy.


Not with standing the demands of the aviation sector, the government on 25th July 2018 declared that there was no proposal to bring ATF under GST. This move would have helped diminish the cost as airlines would have gotten input tax credit.


The cost of ATF has escalated by nearly 50%, a colossal spike in the input costs for the scheduled operators since 31st July 2017. Consistently the ATF cost constituted of 30% of the operating costs of the airline, but in times like these, it has upsurged to 40%.


The surges in the ATF cost are making broader dents in the financials of the aviation sector. In Q1FY19, IndiGo reported a net loss of 96.57%. Jet Airways deferred announced its results for Q1FY19 and later posted a net loss of 2,572.90%, is reeling under the impact of fuel costs. Further, SpiceJet posted a net loss of 182.47%.

 

Indian economy shining. GDP growth at 2 year high of 8.2%

© Equityright 2019 | Powered By ESI