In a big relief to airline companies, the Narendra Modi government today announced excise duty cut on Aviation Turbine Fuel (ATF) from present 14% to 11% as the aviation industry has been hit hard by higher fuel prices. The government notification said that the new tax rate will be applicable from tomorrow.
On one hand, the government has cut excise duty on jet fuel, on the other hand, it has raised customs duty from 0 to 5% — the net effect of which is likely to favor domestic oil companies. Recently, the government raised customs duty on jet fuel as part of its import curb to rein in pressure on the current account deficit (CAD).
However, the decision to cut excise duty may have been taken to offset the losses airline companies would have had on account of higher customs duty. In anticipation of an excise duty cut, the shares of aviation stocks had surged nearly 14% intra-day today.
Jet Airways shares rose by 13.8%, while SpiceJet shares rose by 8%. InterGlobe Aviation, which runs low-cost airline IndiGo surged about 6%. Aviation companies have also been hit by the double whammy of rising crude oil prices and the falling rupee.
This is the second oil related excise duty cut announced by the government this month. To provide relief to petrol and diesel consumers, the government announced an excise duty cut of Rs 1.5 a litre on both, while asking oil marketing companies to absorb a loss of Re 1 per litre. Following the decision, several states also announced VAT cut on fuel.
Meanwhile, Moody’s warned the government of fiscal slippage following the decision to cut the tax on fuel. The rating agency said that the government may miss the fiscal deficit target of 3.3% of the GDP in FY19 by 10 basis points to 3.4%.
However, Finance Minister Arun Jaitley expressed confidence in achieving the fiscal deficit target on the back of better-than-expected direct tax collections and government’s borrowing estimate cut of Rs 70,000 crore in the second half of the year.