GST Council may discuss inclusion of ATF under GST: Sources

The Goods and Services Tax (GST) Council is discussing the issue of including aviation turbine fuel (ATF) under the GST framework, Business Today TV has learned from sources.

As per the current tax structure, the ATF is currently subject to a central excise tax of 11 percent. A reduced rate of 2 percent is available under the Regional Connection Scheme (RCS).

In addition to customs duties, ATF is charged VAT at different rates depending on the state, adding to the complexity and inconsistency of taxation.

ATF is a type of kerosene oil. While the majority of inputs needed to produce an ATF are included in the GST regime, the ATF itself is excluded, leading to an inefficient tax structure.

Currently, ATF and natural gas fall outside the GST regime and are subject to state-level taxes, including customs duties and value-added tax (VAT). These taxes vary across states, significantly increasing operational costs for industries such as airlines, which have long sought uniformity in taxes. For example, an ATF can attract VAT rates of up to 30 percent in some states.

Impact on the aviation industry

ATF VAT is applied to the entire value, including excise duty, resulting in a tax cascade (tax on tax). This increases the actual cost of ATF.

ATF manufacturers cannot claim Input Tax Credit (ITC) on the GST paid on their inputs, which increases the overall production cost and raises prices for the aviation sector.

Benefits of inclusion under GST

If the ATF is brought under the GST regime, it will help eliminate cascading taxes by allowing manufacturers to avail input tax credit.

This could significantly reduce the overall cost of ATF at the refinery level, potentially reducing costs for the aviation industry and encouraging better price predictability and stability.

The government is working to bring Aviation Turbine Fuel (ATF) and natural gas under the Goods and Services Tax (GST) regime during this financial year, said Tarun Kapoor, Advisor to the Prime Minister’s Office (PMO). Kapoor emphasized that discussions are underway to implement this transformation, which has been a long-term demand of various sectors, especially aviation and energy.

Ongoing discussions on this topic aim to simplify the tax structure of the ATF, making it more efficient and less burdensome on the aviation sector, which is already dealing with various cost challenges.