Airfares are set to get costlier with higher excise duty of 14 per cent proposed on jet fuel in the Union Budget, even as it offers relief to the aviation sector with rationalisation of taxes for MRO works.
The Budget for 2016-17 has brought both cheers as well as tears to the aviation sector as airlines have been seeking lower levy on Aviation Turbine Fuel (ATF), which accounts for over 40 per cent of a carrier's operating expenses.
The government also announced reduced funding to Air India, which would receive Rs 1,713 crore as part of its Rs 30,0231 crore equity infusion plan while the Civil Aviation Ministry saw a lower outlay at Rs 4,417 crore for the 2016-17 fiscal.
The excise duty on Aviation Turbine Fuel (ATF) is to be hiked to 14 per cent from 8 per cent, according to a proposal in Union Budget 2016-17.
"Excise duty on ATF, other than for supply to Scheduled Commuter Airlines (SCA) from the Regional Connectivity Scheme Airports, (is) being increased.
"ATF for supply to aircraft under the Regional Connectivity Scheme will continue to attract 8 per cent excise duty," Finance Minister Arun Jaitley said while presenting the Budget.
The hike in excise duty comes at a time when airlines were seeking lower levy on jet fuel, which accounts for more than 40 per cent of their total operating expenses.
"Increase in excise duty on ATF will make the raw material costlier by around 4-5 per cent. At a time when ATF in India is 60-70 per cent costlier than global ATF prices, it goes against the government's stated objective to make flying affordable for the masses", Amber Dubey, partner and head-aerospace and defence at global consultancy KPMG said.
"The significant hike in excise duty on ATF will add to the high cost-environment for airlines in India," global airlines body International Air Transport (IATA) said in a statement.
Besides, 0.5 per cent cess on all taxable services would add to the cost of an air ticket.
Krishi Kalyan Cess would be levied on all taxable services from June 1, 2016, and the proceeds would be utilised to improve agriculture.
However, in a move to boost 'Make In India' programme, the government has accepted a long-pending demand to rationalise taxes on MRO services.
Jaitley has announced a slew of sops including simplification of import processes for aircraft spares, removal of the one year window restriction period for using duty free parts, exem
The positive side of the budget is that the government has by and large accepted demands of the MRO industry, Dhiraj Mathur, Partner (Aviation) at consultancy firm PwC India said.
But at the same time, service tax on MRO services remained unchanged at 14 per cent, against the wishes of the industry and is expected to play a spoil sport in international attracting airlines to bring their fleet for service in India.
To boost air connectivity, the government is preparing an action plan to revive 160 airports and airstrips, each of them would cost about Rs 50-100 crore, Jaitley in his budget speech.
"There are about 160 airports and airstrips with state governments which can be revived at an indicative cost of Rs 50 crore to Rs 100 crore each. We will partner with the state governments to develop some of these airports for regional connectivity. Similarly, 10 of the 25 non-functional airstrips with the Airports Authority of India (AAI) will also be developed," Jaitley said.
This move will facilitate creation of necessary infrastructure for enhancing regional air connectivity and providing access by air to more parts of the country, Peeyush Naidu, Partner, Deloitte Touche Tohmatsu India LLP said.