ATF May Come Under the Ambit of GST says FM

ATF may come under the ambit of GST says FM

Indian Market
by 5paisa Research Team Last Updated: 2022-08-08T19:01:33+05:30

In the light of persistent demands from the Union Civil Aviation Ministry, the Finance Minister has confirmed that the issue of ATF inclusion under the ambit of GST would be taken up for discussion in the forthcoming GST Council meeting. This has been necessitated after the recent spike in Brent Crude prices to $93/bbl had raised the spectre of another series of hikes in ATF rates. Aviation Turbine Fuels powers the airline industry.

There is an interesting relationship between GST and the oil basket. When GST was introduced in July 2017, some of the products that were kept out of being subsumed into GST were the taxes on crude oil, natural gas, petrol, diesel and ATF. The idea here was the huge revenue dependence of the central and state governments on this sector. That created a dual level of taxation of central excise and state level VAT on oil products.

Check - Brent Crude Crosses $90/bbl for 1st Time in 7 Years

Several industry bodies have been demanding the inclusion of fuel under GST, which would bring down the burden on the customer. However, the centre and states were not keen to give up on this cash cow. However, now the government is gradually veering around to the view that a start can be made by including ATF and gas under the ambit of GST, although petrol and diesel are unlikely to be added for the time being. 

Apart from the CEOs of airline companies in India, even the Ministry of Civil Aviation has asked for the inclusion of ATF under the ambit of GST to provide some relief to airlines. Fuel costs are the biggest operating cost for an airline and most Indian aviation companies are struggling on account of the spike in cost of crude to above $93/bbl. The weak rupee at around 75/$ has only compounded the problem for airlines.

Currently, central government levies excise duty on ATF while state governments charge VAT or value added tax. As oil prices were falling since 2014, the government undertook a series of excise duty hikes and skimmed away most of the benefits of lower crude prices instead of passing them to customers. Now, there is a major problem on hand as prices are elevated for a prolonged period and the pandemic has caused huge losses for airlines.

The good thing is that the FM has acknowledged that the airlines need a helping hand. She has also expressed willingness to talk to banks and enable credit lines to ease the stress. For now, the fingers are crossed. The government may take a decision to include ATF under GST as an experimental case study to gauge the overall impact on the government revenues. Then the template can be extended to other oil basket components.

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