The 55th GST Council meeting is set for December 21, and all eyes are on a crucial agenda item: whether Aviation Turbine Fuel (ATF) will be brought under the GST regime. The current dual tax structure — with VAT imposed by states and excise duty levied by the central government — has long been criticized for escalating air travel costs and preventing airlines from claiming input tax credits. The potential inclusion of ATF under GST could herald significant changes for the aviation sector.
Dual Taxation and Rising Costs: The Burden of Jet Fuel Taxes
Aviation turbine fuel accounts for 30-40% of airline operating expenses, making it a key factor in profitability. Currently, ATF is taxed through two layers:
- Central Excise Duty: Fixed at 11%, this is a uniform tax levied by the central government.
- Value Added Tax (VAT): Varies significantly by state. For instance:
- Goa increased its VAT on ATF from 8% to 15% earlier this year.
- Delhi-NCR and Gurugram impose a hefty 25% VAT on jet fuel.
Such variations complicate pricing strategies for airlines and push fuel costs higher. Earlier this December, Indian Oil Corporation hiked ATF prices by 1.45%, taking the per-kilo-litre cost in Delhi to ₹91,856.84. Rates in other metro cities like Kolkata, Mumbai, and Chennai followed similar trends, adding pressure on airlines to pass costs onto passengers.
Why Bringing ATF Under GST Matters
The primary argument for bringing ATF under GST is the cascading effect of the current taxation system. VAT and excise duties on ATF not only inflate prices but also prevent airlines from claiming input tax credits (ITC). This lack of ITC impacts the cost-effectiveness of operations, a burden ultimately borne by passengers through higher ticket prices.
Sources familiar with the GST Council agenda revealed detailed pros and cons of including ATF under GST. One point of contention is that ATF is a derivative of kerosene, most of whose inputs already fall under GST. The inclusion of jet fuel could streamline taxation and benefit industries dependent on air logistics.
The Airlines to Watch: Stocks in Focus
As discussions unfold, market watchers are eyeing the listed airline stocks — Indigo and SpiceJet. These two players are likely to experience stock price fluctuations based on the council’s decision. While other airlines like Air India and Akasa Air operate in India, they are not publicly traded.
For investors, the GST Council’s decision could either bolster profitability by reducing tax burdens or maintain the status quo, leaving operational challenges intact.
A Long Road to GST Inclusion
While ATF and other petroleum products are constitutionally part of the GST framework, their inclusion depends on the GST Council’s recommendations. Under Article 279A, the council is empowered to decide on the GST applicability date for petroleum crude, natural gas, and ATF, among others.
In 2019, the Ministry of Petroleum and Natural Gas stated that inclusion requires council approval under Section 9(2) of the CGST Act. The council must weigh the implications of such a move, including potential revenue losses for states reliant on VAT collections.
Broader GST Agenda: Health Insurance and Other Reforms
ATF isn’t the only item on the table. The council is also expected to discuss:
- Reduced GST rates on packaged water: A recommendation from a group of ministers.
- Tax changes in health and life insurance premiums: A proposal to modify GST rates in the insurance sector.
These discussions reflect an effort to address anomalies in the tax regime, which has seen significant stabilization since its launch in 2017.
GST’s Role in Strengthening Cooperative Federalism
Despite its initial challenges, the GST framework has brought transformative changes to India’s taxation system. The GST Council, comprising representatives from both the central and state governments, exemplifies cooperative federalism. However, contentious issues like ATF inclusion highlight the delicate balancing act between central and state interests.
For now, stakeholders await the outcome of the 55th GST Council meeting. Will Finance Minister Nirmala Sitharaman and the council take the plunge to include ATF under GST? Or will the dual tax regime continue to weigh on the aviation sector? The decision could set the tone for future reforms in India’s taxation landscape.
