Aviation companies will not get a cut in the levy on Aviation Turbine Fuel (ATF) which they had demanded from the government.
Top sources say that the government is not likely to accept the plea from various airlines, backed by the ministry of civil aviation, that states and oil marketing companies (OMCs) should reduce the taxes, as it happened with petrol and diesel.
Junior minister for Civil Aviation Jayant Sinha had met finance minister last month to urge him to bring aviation turbine fuel (ATF) under the ambit of GST.
During the meeting, the aviation ministry said that Indian carriers are facing tough business conditions despite India being one of the world’s fastest growing markets. The ministry mentioned rising oil prices and depreciating Rupee.
The Finance Ministry clarified that decision to bring ATF under the GST framework will be taken by the GST Council and that it will happen when wider decision to subsume petrol and diesel is taken.
Crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) was kept out of the purview of GST when it was introduced in July last year.
On the face of it, the domestic aviation sector has flown into a turbulent financial period.
On Oct 24, low-cost carrier IndiGo, which is India’s largest airline company by market share, reported losses for the first time since its listing 3 years ago.
Govt owned oil manufacturing companies hiked aviation turbine fuel price by 7.25% last month, thus taking the ATF prices to the highest mark of Rs 74,567 per kilo-litre (kl) in Delhi under the present government.
In comparison, ATF had hit Rs 77,089 per kl mark in 2013.
ATF constitutes approximately 35% of the operational cost of an airline in India.
A CRISIL report last month concluded that the Operating costs of airlines in india have gone up by 20% compared to the last fiscal largely because of a 30% rise in crude oil prices and 9 per cent depreciation in the rupee. Thishas skewedd the input cost of fuel for airlines.
IATA (International Air Transport Association) says that fuel accounts for 24.2% of an airline’s cost structure world over. In India, it is 34% , making Indian carriers particularly vulnerable.
On October 10, the government cut excise duty on jet fuel from 14% to 11% to help keep airfares under check and to give relief to airlines troubled by high fuel prices. But it come after a hike in basic customs duty on ATF after September 26, thus diminishing its effect.
States charge VAT on ATF ranging from 3% to more than 30% in states like Andhra Pradesh. Unless the states trim down the VAT in sync with a cut in the central levy, ATF prices will not change significantly.
Airline operators like Spicejet state that if oil manufacturing companies cut their margin by just Re 1 and state governments reciprocate with a similar cut fuel cost will come down by 10%.
The government suggests that airlines can increase prices on tickets which are sometimes priced abnormally low and improve their margins.