In what may come as a relief to the airlines operating in India, the central government is reported to be considering shifting aviation turbine fuel (ATF) to specific rate of duty instead of the current system of imposing ad valorem duty.
The difference between the two is that with the ad valorem duty, the cost of ATF keeps going up or down with the price of the fuel whereas with the specific duty it is per litre irrespective of the price. Petrol and Diesel enjoy the specific rate of duty currently. ATF is currently chargeable at 11% ad valorem rate of excise duty.
The modification in the duty structure may be part of the announcements in the Union Budget to be presented to the Parliament by the Finance Minister Nirmala Sitharaman on February 1, 2020.
Aviation turbine fuel is the largest contributor towards the cost of flying an aircraft and the airlines find it difficult to manage the frequent changes in its cost due to the price fluctuation and the corresponding change in the duty. This directly influences the flight tickets and the air passengers’ case is being taken up by the Ministry of Civil Aviation with the Finance Ministry. This current development of the finance ministry planning to change the duty structure to the specific rate may be a fallout of this push by the aviation ministry.
Having said that, ATF is also a source of revenue for the governments at the centre and the states. That is one of the reasons the product has been kept out of the purview of GST. Even if the central government tried including ATF under GST, it may find it hard to convince the states to fall in line.
The ad valorem rate of excise duty has caused other administrative difficulties for the airlines too. The current rate of duty is 11% ad valorem. There are concessions available where the fuel is bought for flying under the Regional Connectivity Scheme.