The government has proposed an increase in excise duty on jet fuel in its latest budget, a move that will negate some of the benefits airlines accrued from the lower fuel prices and likely increase ticket fares on some routes.
The increase in duty–14% from 8%–will not be however valid for fuel supplied at regional airports at smaller cities.
“Excise duty on Aviation Turbine Fuel [ATF], other than for supply to Scheduled Commuter Airlines (SCA) from the Regional Connectivity Scheme Airports, being increased. ATF for supply to aircraft under the Regional Connectivity Scheme will continue to attract 8% excise duty,” said an annexure on indirect taxes to finance ministry Arun Jaitley’s budget speech for 2016-17 which he presented in the parliament on Monday.
Airlines and industry experts criticised the move.
“This will have a dual impact, also increasing sales tax levied on the fuel. Currently, jet fuel price sold at airports is calculated in terms of basic price plus excise duty and a sales tax is levied on that value,” said the finance chief of a full service carrier, who didn’t want to be named. State governments levy sales tax ranging between 15%-35% on ATF.
“There will likely be more impact on flights between the metro cities of Mumbai, Delhi, Bengaluru, Hyderabad, Kolkata and Chennai,” he added.
“Increase in excise duty on ATF will make the raw material costlier by around 4-5%. At a time when ATF in India is 60-70% costlier than global ATF prices, it goes against the govt’s stated objective to make flying affordable for the masses,” said Amber Dubey, partner and head-aerospace and defence at global consultancy KPMG.
ATF prices have reduced by 25%-30% in the last one year.
The budget has some positive proposals too, although analysts said they may be too little.
The budget proposes that tool and tool kits being imported by Maintenance Repair and Overhaul (MRO) units will be exempt from basic customs duty, special allowance duty and countervailing duty.
Also tools and tool kits being imported will be exempt from excise duty, subject to certification from the DGCA.
Jaitley also said the customs baggage rules for international passengers are being simplified so as to increase the free baggage allowance.
Moreover, the filing of baggage declaration will be required only for those passengers who carry dutiable goods.
“Reforms in MRO procedures, duty free period and free stay period are welcome but the bigger relief in terms of zero-rating of service tax and ‘infrastructure’ status for MRO have been left out,” said Dubey.
