India is proposing to bring jet fuel and natural gas under the national goods and services tax as early as next week and replace a slew of existing duties and provincial levies, people familiar with the matter said.
A tax panel will decide July 21 whether to approve the proposal to levy a 28 percent tax on aviation fuel, the people said, asking not to be identified as deliberations are confidential. This will be the first step towards charging GST on petroleum products under the new tax system, one of the biggest reforms for Prime Minister Narendra Modi.
Indian states charge as much as 30 percent in sales tax on aviation turbine fuel, on top of a 14 percent excise duty, making it the costliest in Asia. The levies hurt profitability of airlines, which say that fuel accounts for 40 percent of their costs. Combined taxes in New Delhi, India’s busiest airport, are 39 percent, while Singapore charges just 7 percent value added tax.
Bringing the fuel under the national tax regime will make it easier for airlines to make payments as the rate will be uniform across the country unlike now when it varies from state to state. D.S. Malik, a spokesman for India’s finance ministry declined to comment
Ministers from Central and state governments will also discuss introducing an additional tariff to bridge any shortfall in government revenues due to the new structure, the people said, a move that could nullify any monetary gains for airlines. The government is yet to propose a final tax rate on natural gas, they said.