Our expansion plans will take a hit due to ATF duty, say airlines

Say the move will make international flights uncompetitive, seek rollback

Domestic airlines are seeking a rollback of 11 per cent basic excise duty on aviation turbine fuel (ATF) for international flights. The additional charge has been levied by one of the three state oil marketing companies (OMCs) since Friday.

Airlines feel that it will make international operations costlier and slow down their expansion. On July 1, a special additional excise duty of Rs 6 per litre was introduced on bulk export of ATF. This is not applicable to airlines. However, from July 1, one of the OMCs started levying 11 per cent basic excise duty on fuel purchased for international flights. Hitherto, this charge was not levied for overseas flights.

“This is a big negative for domestic airlines and it will put us at a disadvantage against foreign airlines that are exempt from the duty. Raising fares, too, would be difficult, given the intense competition on international routes. We have taken up the issue with the civil aviation and petroleum and natural gas ministries,” said a senior executive from a private airline.

Another executive said they are awaiting further clarity on the issue of excise duty from the government in 24-48 hours. “It is still a bit of a grey area,” he said. Emailed queries to airlines did not elicit any response.

Abhishek Jain, tax partner, KPMG, said the July 1 decision has created a disparity between domestic and foreign airlines and the government needs to resolve it.

According to Jain, the government has done away with the export status of ATF consumed in international routes operated by Indian carriers. Thus ATF is now subject to basic excise duty, which is applicable on domestic routes. “This has created a disparity with foreign airlines that are not liable to pay this duty, according to Section 3 of the Foreign Aircraft (Exemption from Taxes and Duties on Fuel and Lubricants) Act 2002,” he said.ATF accounts for around 40 per cent of an airline’s operating expenses.

A surge in its price has already put airlines on the back foot and there have been repeated pleas from the aviation industry to reduce taxes. Domestic ATF price has risen 78 per cent since January.  

(With inputs from Shine Jacob)