Business Today TV has learned from sources that the GST Council is discussing the issue of inclusion of Aviation Turbine Fuel (ATF) under the Goods and Services Tax (GST) framework.
As per the current tax structure, ATF is currently subject to a central excise duty of 11 percent. A reduced rate of 2 per cent is available under the Regional Connection Scheme (RCS).
In addition to excise duty, VAT is levied on ATF at varying rates by state, adding to the complexity and inconsistency of taxation.
ATF is considered a variant of kerosene. Majority of the inputs required for the production of ATF are covered under the GST regime, while the ATF itself is excluded, resulting in inefficiency in the tax structure.
Currently, ATF and natural gas are outside the GST regime and are subject to state-level taxes, including excise duty and value-added tax (VAT). These taxes vary across states, significantly increasing operating costs for industries such as airlines that have long sought uniformity in taxation. For example, ATF can attract VAT rates as high as 30 percent in some states.
Impact on the airline industry
VAT on ATF is applied on the full value, including excise duty, leading to tax break-up (tax on tax). This increases the effective cost of ATF.
Manufacturers in ATF cannot claim input tax credit (ITC) on GST paid on their inputs, which adds to the overall cost of production and raises prices for the aviation sector.
Benefits of inclusion under GST
If ATF is brought under the GST regime, it will help eliminate cascading taxes by allowing manufacturers to avail input tax credit.
This can significantly reduce the overall cost of ATF at the refinery level, potentially reducing costs for the airline industry and encouraging better price predictability and stability.
Advisor to the Prime Minister's Office (PMO) Tarun Kapoor has said that the government is working to bring Aviation Turbine Fuel (ATF) and Natural Gas under the Goods and Services Tax (GST) regime this financial year. Kapoor confirmed that talks are underway to implement the move, which has been a long-standing demand from various sectors, particularly aviation and energy.
Discussions on this topic aim to streamline the tax structure for ATF, making it more efficient and less burdensome on the aviation sector, which is already facing various cost challenges.