Centre Cuts Excise Duty On Blended Aviation Turbine Fuel To 2% For Regional Flight Operators
The government has cut the excise duty on blended ATF to 2% for all domestic flights while all others will be subjected to a higher tax rate of 11%.
The central government has lowered the duty on blended aviation turbine fuel for select airlines as it is considering making the use of this fuel voluntary for domestic flights by next year, with plans to make it mandatory by 2027. This change follows the reclassification of blended ATF as a new category under mineral products in the Central Excise Act.
The Department of Revenue under the Ministry of Finance announced in a notification that designated airline and cargo operators using blended aviation turbine fuel for flights under the Regional Connectivity Scheme and the UDAN scheme would be subject to a 2% excise duty. For all other uses of blended ATF, the excise duty rate will be 11%.
The move comes after the aviation industry raised concerns that blending could raise operational costs, suggesting that the government may need to provide incentives to encourage airlines to adopt the new fuel voluntarily.
"The policy changes represent a balance between environmental responsibility and economic considerations," according to Saurabh Agarwal, tax partner at EY India. "The reduced excise duty is expected to lower operational costs for airlines, potentially leading to more competitive airfares for the common man."
According to finance ministry officials, the reclassification is a preliminary step towards potentially making blended aviation turbine fuel optional for domestic flights, while further decisions will be taken following comprehensive consultations with relevant entities, including the Ministry of Civil Aviation, Niti Aayog, as well as the oil marketing companies.
In January, the Centre set a target to achieve a 1% blending of sustainable aviation fuel with traditional jet fuel for all international flights by 2027.
This goal stems from recommendations made by a committee on SAF established by the Ministry of Petroleum and Natural Gas. Sustainable aviation fuel is viewed as a cleaner alternative to fossil-based fuels.
The shift to SAF, while environmentally beneficial, may pose a challenge in terms of cost management, says industry stakeholders. They raised concerns regarding the high production costs of biofuels, which could lead to increased fuel prices for airlines. Ultimately, these costs might be passed on to consumers in a market sensitive to price fluctuations. EY's Agarwal said that the reduced excise duty could neutralise its effect to some extent.
India's aviation sector is set for a significant upgrade with the government planning to add 71 new airports to the existing 149, as part of the UDAN scheme. Aimed at enhancing connectivity in underserved regions, this expansion is expected to boost passenger numbers in coming years.
