Budget 2016: Air travel to become expensive

New Delhi: Fliers will have to shell out more with the government proposing a hike of 6 percent in excise duty on jet fuel but it would not be applicable to the proposed Scheduled Commuter Airlines (SCAs) under the regional connectivity scheme.

The excise duty on ATF is to be hiked to 14 percent from 8 percent, according to a proposal in Union Budget 2016-17.

The increase would be virtually applicable to airlines operating from all airports since the proposal for SCAs and the regional connectivity scheme are yet to be implemented.

The Civil Aviation Ministry has mooted the idea of SCAs and regional connectivity in the draft aviation policy which has not been finalised yet.

"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 aircrafts under the Regional Connectivity Scheme will continue to attract 8 percent excise duty," Finance Minister Arun Jaitley said while presenting the Budget.

Interestingly, the hike in excise duty also comes at a time when airlines have been seeking lower levy on jet fuel, which accounts for more than 40 pr cent of their total operating expenses.

"Increase in excise duty on ATF will make the raw material costlier by around 4-5 percent. At a time when ATF in India is 60-70 percent 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.

Currently, jet fuel prices vary from state to state depending on the Value Added Tax levied by them.

Meanwhile, the government's latest move announced also indicates that there would be changes in proposals made in the draft civil aviation policy.

As per the draft policy, ATF drawn by SCA's from the regional connectivity scheme airports shall be exempt from excise duty.