As GST kills declared goods, Secy wants jet fuel for small planes to attract lower tax

airports

Civil Aviation Secretary RN Choubey will soon write to chief secretaries of states to commit to lower value added tax (VAT) on aviation turbine fuel (ATF) supplied to airline companies for flying smaller planes.

The matter arose as ATF supplied to airlines for planes of less than 80 seats was considered a 'classified good' or 'declared good' under Central Sales Tax Act. CST got subsumed into the Goods and Services Tax and no category such as 'classified goods' exists now.

Under the CST Act, there were restrictions on the powers of states to impose sales tax or value added tax on a declared good and as such a declared good attracted a lower CST/VAT rate of 5 percent.

Now with CST gone and there no more being a category like 'declared good', ATF supplied to even smaller planes is now being charged at the same VAT rate as ATF for large planes which is as high as 24 percent in some states.

Must watch: Another Tryst With Destiny! How GST Will Change Your Life After July 1

“So it's necessary and very urgent for states to separately state that they will not charge ATF at same level,” a source in the aviation ministry said.

A lower VAT on ATF for small planes is crucial for the success of the government's regional connectivity scheme that aims to make flying affordable for people living in cities with airports that are unserved or under-served. States have to lower their VAT rates on ATF for smaller planes under their commitment to the regional connectivity scheme.

Under the scheme, the government auctions selected unserved and under-served routes with the award going to the company that asks for lowest funding. The winner gets a 3-year exclusive right to operate flights on the route. Fare for half the seats in a flight is capped at Rs 2,500 for an hour of a plane journey of approximately 500 km and a 30-minute helicopter journey.

The selected airline provides 50 percent of the flight capacity – with a minimum of 9 and maximum of 40 seats for planes and a minimum of 5 and maximum of 13 seats for helicopters -- under the regional connectivity scheme.

Of the five airlines awarded routes under round one of auctions, Alliance Air, Spicejet and Trujet have launched operations while Air Odisha and Air Deccan are yet to. As per the agreement with the government, they need to start the operations by end of September. The government plans to hold the second round of auctions early next month.