55th GST Council Meeting: Will FM Sitharaman Put ATF Under GST? Airline Stocks In Focus

The 55th GST Council meeting is scheduled to take place on December 21, and as per the latest reports, the chances of bringing aviation turbine fuel (ATF) are on the cards. It is reported that the current dual tax regime which is VAT and excise duty makes flying expensive with airliners passing the impact of high fuel costs to consumers. Also, one of the key reasons to potentially include ATF under GST is that companies are not able to avail of input tax credits. Accordingly, airline stocks will be in focus.

At present, jet fuels in India attract two tax rates which is a central excise duty of 11% that is levied by the central government. And the other is Value Added Tax (VAT) whose rates vary from state to state. VAT is imposed by states.

At the start of 2024, states like Goa and Andhra Pradesh raised their value-added tax (VAT) on ATF prices to 15% and 10% per kilo-litre from earlier 8% and 5%. Meanwhile, states like Delhi-NCR, Gurugram, and Haryana charge massive VAT of 25% on ATF on existing airports.

At the start of December month, Indian Oil, the largest OMC increased ATF prices by Rs 1,318.12 per kilo-litre or 1.45% in Delhi. Other metro cities followed suit. Currently, per kilo-litre of jet fuel is priced at Rs 91,856.84 in Delhi, at Rs 94,551.63 in Kolkata, at Rs 85,861.02 in Mumbai, and at Rs 95,231.49 in Chennai.

Airlines 30-40% of expenses are on jet fuel, and hence ATF prices play a key role in their profitability ahead.

Earlier this month, the group of ministers recommended decreasing GST rates on pre-packaged water and other products. Apart from this key changes in GST related to health and life insurance premiums are likely
to be discussed as well.

For the 55th GST Council meeting, sources told CNBC-TV18 that the agenda of the council revealed a proposal to take a view on whether to bring ATF under GST or whether to maintain the status quo. They revealed that the agenda has detailed analysis for and against including ATF under GST.

The sources told the news agency that ATF is a variant of kerosene oil and most of its inputs are within GST, and hence jet fuel could be considered to be added under the GST regime. The agenda also took note that VAT and central excise duty cause cascading of taxes. Thereby, industry and manufacturers are not able to enjoy the benefit of ITC on the inputs they pay for ATF.

Under Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.

While in June 2019, the Ministry of Petroleum & Natural Gas told Rajya Sabha that Article 279A (5) of the Constitution provides that the Goods and Services Tax Council shall recommend the date on which goods and services tax shall be levied on petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel.

Thus, while, petroleum products are constitutionally included under GST, the date on which GST shall be levied on such goods, shall be as per the decision of the GST Council. As per section 9(2) of the CGST Act, the inclusion of all excluded petroleum products, including petrol and diesel in GST will require a recommendation of the GST Council.

The Goods and Tax(GST) regime has largely stabilized as the major bumps and roadblocks have already been addressed. Over these years, despite some teething troubles, the GST regime has brought a sea change in how business is done in India and has also strengthened the idea of cooperative federalism with the GST Council.

Currently, in India, the main airlines are Indigo, Air India, Akasa Air, and SpiceJet. However, only two airline stocks are listed namely SpiceJet and Indigo. These two stocks will be in focus.