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Govt mulling levying specific rate of excise duty on ATF
Jan-20-2020

With no view of including jet fuel under the ambit of Goods and Services Tax (GST) in near future, the government is mulling levying specific rate of excise duty on aviation turbine fuel (ATF) in place of current ad valorem rates to insulate its prices from cascading effect in times of volatile prices. ATF currently is chargeable at 11 percent ad valorem rate of excise duty. Concessional rate of 2 percent is applicable for ATF sold under Regional Connectivity Scheme. Ad valorem rate means that the impact of an increase in price of the fuel because of global rate hike translates into an even higher price for airlines as the tax incidence also rises.

To protect airlines from such volatility, the government may in the upcoming Budget for 2020-21 fiscal year may bring specific excise duty expressed in Rs per kiloliter. Petrol and diesel already attract a specific rate of excise duty and so ATF naturally qualifies for such a shift. If cost of production of ATF is Rs 100 per kilolitre, the fuel at exit from the refinery will be priced at Rs 111 per kilolitre after levying 11 per cent excise duty. If the cost rises to Rs 110, the ex-refinery rate would attract an excise duty of Rs 12. A specific duty of say Rs 11 per kilolitre would mean that even if the cost goes up the tax incidence would remain the same. Petrol and diesel already attract specific excise duty for the same purpose. Excise duty on petrol currently is Rs 21.16 per litre and that on diesel is Rs 15.83 a litre.

This would ensure correct payment of duty at the initial clearance stage itself and will eliminate complexities and difficulties in redetermination of duty on further stock transfers which sometime result in avoidable litigation. Specific excise duty would address part of the concerns of oil companies and airlines of not being able to set of tax paid on inputs against the tax on final product as ATF has been kept out of GST regime. When the GST was rolled out on July 1, 2017 amalgamating 17 central and state levies, five commodities namely crude oil, natural gas, petrol, diesel, and ATF were kept out of its purview given the revenue dependence of state governments on this sector.
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