The aviation ministry wants the tax benefits on aviation turbine fuel (ATF) for smaller aircraft, that were applicable before the introduction of the Goods and Services Tax (GST), to continue.
It plans to write to state governments asking them to continue offering the same benefits, two senior officials privy to the development told BloombergQuint.
Under the previous indirect tax regime, ATF for aircraft with a takeoff mass of less than 40,000 kg, carrying less than 80 passengers, was listed as part of declared goods, and the tax on it was capped at 5 percent. Under the Goods and Services Tax regime, the declared goods category itself stands nullified.
So while ATF does not come not under the ambit of GST, in the absence of the 5-percent cap, states are free to increase tax rates. Maharashtra, for example, started levying a 24 percent value-added tax on ATF for smaller aircraft – the same as the fuel used by larger aircraft.
The ministry is putting forth this request so that the smaller airlines aren’t negatively affected, said one of the two officials quoted above. An emailed query to the aviation ministry did not immediately elicit a response.
The smaller aircraft in question are operated by carriers on regional flights, including on the government’s regional connectivity scheme, UDAN. It has aggressively pushed the scheme, offering viability gap funding to carriers for the losses they incur while flying on non-commercial routes.
Air India Ltd.’s subsidiary Alliance Air, SpiceJet Ltd., TruJet, Air Deccan, and Air Odisha won routes under the first phase of the scheme. Of the mentioned airlines, Air Odisha and Captain Gopinath-promoted Air Deccan are yet to start flight operations.
The aviation ministry is in the process of inviting bids for the second phase of the scheme, where more regional routes are expected to be offered.
Fuel is at present not part of the GST regime. The government has a plan to eventually bring the commodity under the new tax structure, but has not finalised a timeline, the two officials said.