InvestorQ : How do you see the prospects of ATF coming under the GST in the next Council meeting?
Moii Chavate made post

How do you see the prospects of ATF coming under the GST in the next Council meeting?

Tisha Malhotra answered.
1 year ago

It has been a persistent demand of major airlines in last few months to bring aviation turbine fuel (ATF) under Goods and Services Tax (GST). You must be aware that due to revenue reasons, the government had kept petrol, diesel, natural gas and ATF out of GST when it was launched in 2017. These oil related products continued to attract central excise duty and then state level levies and Value Added Tax (VAT) making it quite prohibitive.

The last 2 years have been a sort of double whammy for the airline companies. Firstly, COVID-19 resulted in severe restrictions on flying and that resulted in low passenger load factors (PLF) as well as unfavourable spreads between RASK and CASK, leading to operating losses. The bigger challenge was the price of crude spiking to $97/bbl and actually scaling up by 30% since the start of 2022 on the back of genuine geopolitical concerns.

To combat this dual attack, most airline companies are demanding shifting ATF to GST even if the shifting of petrol and diesel was too sensitive at this point of time. After all, central excise plus state levies create a cascading effect on ATF. When airlines are under so much stress, this is not a burden they can really afford to foot. If GST is brough under the ambit of 18% GST, then the pricing of ATF becomes more predictable as you go into the future.

However, the government may have answer to this disconnect between lower ATF prices and revenue collections. Government will shortly announce a formula to bring ATF under the ambit of GST, albeit with a tweak. GST Council may suggest 18% GST on ATF over and above VAT charged by the states. This will eventually be subject to acceptance of various states, before inclusion of ATF under GST can take effect. But the intent is surely there.

Nirmala Sitharaman has promised to take up the issue of inclusion of ATF under GST for a debate in the next GST Council meeting. The hybrid model of charging GST by centre and VAT by states for ATF has global precedents too. This formula will be in line with the global best practices only. ATF is up 4 times in the last 2 months and today ATF costs Rs.90,520/KL in Delhi and is among the highest in the world, with domestic flyers bearing the brunt.