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The GST Council is deliberating on the issue of including aviation turbine fuel (ATF) under the Goods and Services Tax (GST), Business Today TV has learned from sources.
Under the current tax structure, the ATF is currently subject to central excise duty of 11 per cent. The Regional Connectivity Plan (RCS) offers a reduced rate of 2 percent.
In addition to excise taxes, VAT is applied to ATF at different rates depending on the state, adding complexity and inconsistency to taxation.
ATF is considered a variant of kerosene oil. While most of the inputs required to produce ATF are covered under the GST regime, ATF itself is excluded, resulting in inefficiency in the tax structure.
Currently, ATF and natural gas fall outside the GST regime and are subject to tax at the state level, including excise duty and value-added tax (VAT). These taxes vary between states, significantly increasing operating costs for industries like airlines, which have long sought uniformity in taxes. For example, the ATF can result in VAT rates of up to 30 percent in some states.
Impact on the aviation industry
VAT on ATF is levied on the full value including excise duty, resulting in a cascade of taxes (tax on tax). This increases the effective cost of ATF.
ATF manufacturers cannot claim input tax credit (ITC) on the GST paid on their inputs, increasing the overall cost of production and raising prices for the aviation sector.
Benefits of inclusion under GST
If the ATF is included in the GST regime, it would help eliminate cascading taxes by allowing manufacturers to avail input tax credit.
This could significantly reduce the overall cost of ATF at the refinery level, potentially reducing costs for the aviation industry and encouraging better price predictability and stability.
Tarun Kapoor, advisor to the Prime Minister’s Office (PMO), has said that the government is working to include aviation turbine fuel (ATF) and natural gas under the Goods and Services Tax (GST) regime under this financial year. Kapoor confirmed that discussions are underway to implement this change, which has been a long-standing demand from various sectors, especially aviation and energy.
Ongoing discussions on this issue aim to rationalize the ATF tax structure, making it more efficient and less burdensome for the aviation sector, which is already facing several cost challenges.
