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 from 2027. This change follows the reclassification of blended ATF as a new category under mineral products in the Central Excise Act.
In a recent notification, the Department of Revenue under the Ministry of Finance announced 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, however, 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.
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, after which it plans to issue compulsory blending mandates for domestic flights. This initiative is based on recommendations from 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. But airlines are hesitant to adopt it due to the higher production costs of the biofuel, which could result in increased fuel prices. The mandatory shift to SAF would mean that these costs would ultimately be passed on to consumers in a market sensitive to price fluctuations.
However, experts say that a lower duty could help mitigate this impact to some extent. "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.
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 the coming years.
