Budget 2017 – Excise duty on Jet Fuel to be cut?

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The Indian airline industry has finally managed to shake off the shackles of loss, with a few airlines recording profits on the back of increased customer usage. While flying may not be everyone’s cup of tea, increased competition and strict government regulations have made it cheaper than before. With the budget around the corner, representatives from the Civil Aviation Ministry have put forth a recommendation seeking a cut in the excise duty on jet fuel. The government had increased the excise duty on jet fuel (also known as aviation turbine fuel) from 8% to 14% in the last budget. This new recommendation seeks a reversal in this hike, bringing back the excise duty to 8%.

The primary reason behind increasing the excise duty last year was to offset the government for tax losses suffered on account of dipping crude oil prices. Over the last year, however, crude oil prices have almost doubled, with the aviation sector feeling a pinch thanks to this high excise duty.

The government, on its part, had provided certain excise duty incentives to airlines last year, levying an excise duty of 2% on jet fuel which was purchased from airports falling under the regional connectivity scheme (RCS). This move would see airlines save excise duty on jet fuel each time they purchased it from airports under RCS, with the proposal valid for 3 years.

Indian airline industry – Soaring high?

The Indian aviation industry has witnessed a reform of late, despite seeing players like Kingfisher Airlines bow out in the last few years. With a 20% growth in passengers, airlines have finally reported profits, with even beleaguered Air India expected to make a profit by 2020. Improved connectivity and competitive pricing have ensured increased occupancy, with a number of airlines looking at expanding their fleet, starting with Air India.

Flying could get cheaper if the excise duty on jet fuel is reduced
Flying could get cheaper if the excise duty on jet fuel is reduced

Any drop in the excise duty could help airlines reduce operating costs, resulting in a corresponding drop in airfares as well. While the recommendation has been sent to the Finance Ministry, it is worth the wait to see if it flies high or gets grounded by the Budget.

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