PLI Scheme expansion to bringing ATF under GST: Aviation sector’s Budget 2024 wishlist

Tax rationalisation, bringing ATF under the GST structure, and incentives for local manufacturing under the PLI scheme are key expectations of the aviation industry from the upcoming budget for FY 2024-25.

As Finance Minister Nirmala Sitharaman is going to present the Union Budget 2024 on July 23, aviation sector experts are hopeful of the government's focus on enhancing regional connectivity and expanding airport infrastructure to propel growth.

FM Sitharaman will present the first budget of the Modi 3.0 government on July 23.

The aviation industry expects the finance minister to announce measures for ease of doing business and reduce the tax burden in the full budget for FY 2024-25.

The aviation industry including airlines, airport operators, aerospace components manufacturers, service providers, and drone makers have voiced their concerns seeking a series of measures to support growth.

Here are some of the key expectations of the aviation industry:

Lower tax rate on ATF

The aviation industry has been demanding a lower tax structure on aviation turbine fuel (ATF) or jet fuel for a long time. The lack of a uniform tax structure on ATF has remained a major contributor to higher operational costs for airlines. Some states charge VAT of around 20-30%. A varied VAT rate structure across states creates irregular fuel consumption patterns.

The industry has also been demanding the inclusion of ATF in the GST regime for a uniform tax structure across the country. The inclusion in the GST regime will also enable the industry to claim input tax credits. Lowering taxes on ATF would help to bring down ticket prices and boost sales.

ATF fuel costs account for around 40% of the total expenses of airlines in India as against a global average of 20-25%, according to experts.

Global airline industry body CAPA (Centre for Aviation) has also pitched for a new policy in view of changes in the industry post-pandemic.

"The new policy should plan for airport capacity that will last for a generation and beyond, must define an international air services strategy in line with India's national interests as well as restructuring airspace design to provide capacity for up to 8-10x of the current traffic," the CAPA said in its submission to the government.

Airport operators seek ease of doing business and lower taxes

Airport operators expect the budget to fulfil their demand for grant of priority sector lending status for airports. It will help them access finance easily and at low rates. Airports operators have sought clarity over user development fees paid by passengers and the availability of long-term loans for the industry.

According to airport operators, aerodromes have long gestation periods and short-term loans with high interest rates put an extra burden inflating their financial cost and cash flow mismatch for operations.

Airport operators are also pitching for a hike in duty-free allowance to ₹1,00,000 for purchases from duty-free shops as against the current ₹50,000.

They also seek permission to sell local Indian liquor at departures for no tax and treat these sales as exports.

MRO players and aircraft components makers demand incentives

Domestic aircraft maintenance, repair, and operations (MRO) operators are hopeful that the government would accept the GST Council's suggestion of a uniform tax on aircraft components’ imports. A tax of 5% has been recommended on the imports of components, aircraft parts, testing equipment, tools, and toolkits of aircraft, irrespective of their HSN code.

They also seek incentives along the lines of PLI schemes to boost local manufacturing of aircraft components. Tax breaks for research and development (R&D) in aerospace and systems development and improvement in local supply chains are among the key things on the wishlist of aircraft component makers.

The airline industry has been struggling to make profits. The industry has seen the failure of big airlines Jet Airways and GoAir.

The aviation sector is expected to report losses between $400 and $600 million in FY25 as per CAPA. The industry has been seeking tax incentives to become profitable.