 "aviation ministry")
The aviation sector, currently weighed down by distress, could soon get a breather, with the government planning reforms that might provide tax relief and allow airlines to tap foreign lenders.
The civil aviation ministry is in discussion with the finance ministry to lower tax rates on jet fuel or ATF, increase advantages under the goods and services tax (GST), and allow airlines to raise working capital loans abroad.
Civil Aviation Minister Suresh Prabhu and Minister of State for Civil Aviation Jayant Sinha, in a meeting with Finance Minister Arun Jaitley earlier this week, said these steps could help the industry.
Sources privy to the discussion said the civil aviation ministry has asked for a cut in excise duty from 14 per cent to 8 per cent on aviation turbine fuel (ATF). The government had raised the duty in 2016, to compensate for its losses as global crude prices fell to $30 a barrel. The crude prices have since doubled.
ATF costs are a big pain for Indian carriers. Besides the Centre’s duty, states also have their own sales taxes, and the airlines often end up paying up to 29 per cent levy. When the oil prices were low between 2014 and 2016, the full effects of such high taxes were masked. Now, they are more evident.
The aviation ministry has also asked for input tax credit under the GST on economy class tickets.
The GST, which was rolled out on July 1 last year, provides for certain input tax credit only on business class tickets. In the new indirect tax regime, economy class tickets have a levy of 5 per cent. Input tax credit is allowed only on input services.
Business and first class tickets have a GST rate of 12 per cent, but full input tax credit.
“Input credits for economy class should be allowed. The matter might be followed up with the revenue department,” said a chief financial officer (CFO) of a private carrier.
Domestic airlines, especially low-cost carriers, have pitched for full input tax credit on economy class tickets.
“In the absence of any exemption on import of aircraft and aircraft spares, ATF not being covered within the ambit of the GST, and with such restriction on credit of inputs on economy class, the cost and cash flow impact to the airlines is likely to be very detrimental,” the CFO quoted above said.
The aviation ministry has also sought the intervention of the finance ministry to allow airlines to tap foreign funds for working capital.
“Airlines in their correspondence with the government have requested that since aviation has become a primary mode of transport and hence, an essential part of the infrastructure, they should be given similar benefits of accessing external commercial borrowings (ECBs) for working capital. We have written to the finance ministry, asking for the same,” said a senior aviation ministry official.
Senior airline executives said allowing ECBs for raising working capital can be a game changer for the sector, reeling from the twin shock of high fuel price and exchange rate fluctuation.
Airlines will get access to a large volume of funds at a fairly cheaper interest rate. “Foreign commercial banks, depending on their risk assessment, give a more competitive interest rate than domestic lenders. It is wonderful if you can lower your borrowing cost,” said another CFO of a private airline.
This will also allow the domestic airlines to retire their high-cost working capital debt to domestic lenders.
