Aviation experts call for bringing ATF under GST after recent price rise 

Director and CEO of the budget airline carrier IndiGo Ronojoy Dutta has urged the government to bring the aviation turbine fuel (ATF) under goods and services tax regime to make aviation “viable for airlines and affordable for consumers.” He explained that ATF constitutes 45 per cent of the cost of operating an airline and that the present situation has led to a massive increase in oil prices.

“As you are aware, ATF is 45 per cent of the cost of operating an airline. The current situation has resulted in further increase of oil prices. In addition, there are varied levels of state taxes and VAT which further increase the cost. We have been in talks with the government to bring ATF under GST as it brings benefit of inputs tax credit. We believe that such measures are needed now more than ever, to offset this increase in cost and make aviation viable for airlines and affordable for consumers,” Dutta told Business Today.

A SpiceJet spokesperson has also said that the civil aviation ministry has pushed state governments to reduce VAT and many states have complied, adding the losses incurred on the reduction of VAT and other taxes on ATF are negligible. “They will see the impact of this in terms of the volume of traffic that grows into the states because the moment you get flights into an airport it increases business; it increases tourism and what you lose by way of reducing that is actually very little.”

How does the inclusion of ATF under the GST purview ease the cost burden on airlines?

Flat uniform tax rate on ATF – VAT or GST—can provide instant relief to the carriers given the volatility in global fuel prices.

Partner and Global Airports Lead for Aerospace and Defence at KPMG S Vasudevan says, “A flat uniform tax on ATF (VAT or GST) given the volatility in global fuel prices will certainly provide immediate relief for carriers on the cash outflows. Rupee depreciation and increase in crude prices can have a negative effect on the Indian carriers just as they are building back capacity and international air spaces are opening up. If fares tighten, it will also have an impact on demand, which creates a vicious cycle. Suspension or waiver of Minimum Alternate Tax (MAT) obligations can provide a further boost to cash reserves as well.”

Partner at the Mumbai-based aviation advisory Caladruis Aero, Rohit Tomar agrees and explains that bringing ATF under GST regime would “provide a cushion for the airlines in India to absorb this yield pressure and sustain over the next 1-2 years.” He adds, “In the long term, ATF under GST will bring about consistency in forecasting cost impacts for airlines and make it easier for airlines to take hedging positions irrespective of the deployment of operations across Indian states.”

ATF prices in India as of April 1, 2022 

The aviation turbine fuel prices saw a 2 per cent rise today, the seventh straight increase this year due to a surge in global energy prices. According to state-backed oil retailers, ATF costs Rs 1,12,924.83/kl in Delhi; Rs 1,17,353.71/kl in Kolkata, Rs 1,11,690.61/kl in Mumbai, Rs 1,16,583.71/kl in Chennai for domestic airlines.

For domestic airlines on international run, ATF costs $1,125.25/kl in Delhi; $1,165.50/kl in Kolkata, $1,121.67/kl in Mumbai and $1,120.44/kl in Chennai.