Jet Fuel Under GST: Helping Hand or Divisive Decision
Indian airline suffered a blow when it was announced that ATF will come under GST. This decision raised some eyebrows. Even the Civil Aviation Ministry pitched his concern over this. Jet fuel contributes a third of a carrier’s cost – within the ambit of the goods and services tax. But According to the BloombergQuints calculations, they made a report on three listed airlines about how can they save Rs 1,100 crore tax per year.
But that’s assuming the overall tax rate on aviation turbine fuel for domestic flights falls from about 40 percent (including both central and state levies) now to 28 percent—the highest GST slab. Hence this means loss of revenue for state and central government.
It has been predicted that jet fuel will be classified in the group of 28 percent. Indian Oil Corporation Ltd., the nation’s largest fuel retailer, increased prices of jet fuel by 7 percent to an average of Rs 71,245 a kilolitre across India. Consequently for 11th straight month.The final price includes a 14 percent central excise duty and a state value-added tax(VAT) that varies between 20 and 30 percent. International flights fuels doesn’t get charged while fuel used for regional and UDAN routes attract a very low tax rate. Central and state charge close to 1-4 percent.
Capacity Deployed By Airline Companies
IndiGo, contributes percent of India’s largest carrier’s capacity. Spicejet Ltd. also has 8 percent contribution from UDAN routes while Jet Airways mainly operates internationally. Higher tax rate is impacting them significantly.
Blended tax rate are higher for IndiGo while lower for Jet and Spice as they operate more in international market.
Fuel Cost Structure Of Aviation Companies
Potential Savings For Aviation Companies
with the assumption of 28% tax rate, airline would save Rs 1,100 crore on levies
Paying the shortfall
Central and state will bear equal loss. Lower taxes would boost air traffic, compensating for the drop in tax collection. government could increase it’s revenue by increasing GST paid by passengers. But that would be opposite of Narendra Modi’s vision of making flying cheaper for the common man.
Source: Bloomberg
