Get ready for higher flight prices with ATF duty hike in Budget 2016


Air fares may go up in the coming days with the Union Budget proposing to increase excise duty on jet fuel to 14% from the current 8%.

Jet fuel is the biggest cost for airlines constituting as much as over 50% of total operating costs. Many airlines returned to profits in 2015-16 after years of losses with the decline in global oil prices over the past year.

As per industry experts, the actual impact of the tax measure will be even higher, since sales tax is calculated over and above excise duty at present. State-level sales taxes vary between 4% and 30%. Airlines have been lobbying for lower sales tax for over a decade. The impact will thus be cumulative.

In 2015, Brent crude fell 35% and so far this year, it has dropped 5.4%. However, airlines will face more heat when oil prices start to rise. On 20 January, Brent crude hit a low of $27.88 and since then, it has gained over 26.4%.

“Increase in excise duty on ATF will make the raw material costlier by around 4-5%. At a time when ATF in India is 60-70% costlier than global ATF prices, it goes against the government’s stated objective to make flying affordable for the masses”, said Amber Dubey, Partner and Head- Aerospace and Defence at global consultancy KPMG.
Musafir Namah Bureau


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