HomeAviation NewsCivil aviation minister Jayant Sinha says inclusion of ATF under GST regime underway

Civil aviation minister Jayant Sinha says inclusion of ATF under GST regime underway

Jayant Sinha said inclusion of Aviation Turbine Fuel (ATF) under Goods and Services Tax (GST) regime is underway and added that national carrier Air India is doing well with regard to operating benchmarks.

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By CNBC-TV18 November 21, 2018, 8:07:29 PM IST (Updated)

Civil aviation minister Jayant Sinha says inclusion of ATF under GST regime underway
Born in Jharkhand’s Giridh, Harvard-educated Jayant Sinha

had served as an investment and strategy consultant with firms such as McKinsey & Co and the Omidyar Network. Elected as an MP from Hazaribagh in Jharkhand, Sinha is the minister of state for civil aviation in the Narendra Modi government and had also served as minister of state for finance earlier. Sinha, 55, said the inclusion of Aviation Turbine Fuel (ATF) under Goods and Services Tax (GST) regime is underway and added that national carrier Air India is doing well with regard to operating benchmarks.

Edited excerpts:

Q: Let me start by talking to you about the latest letter that has come in from the Federation of Indian Airlines (FIA) to your ministry. They have essentially written to you asking for deferred payment to airport operators as well as to oil companies. Is this something that your ministry is willing to consider?

A: We always engage with the industry. We listen to their concerns and issues. They have brought up multiple issues in the past that we had resolved. We shall take a look at the most recent representation from them and see what we can do to support the industry. Our goal is to provide supportive policy environment so that our airlines can flourish and succeed. Of course, they have to generate adequate return on capital, otherwise, they will not be able to invest in their businesses and continue to provide the excellent service as well as the connectivity that they have in the past. So, we will certainly take that onboard.

Q: How soon can we expect a decision as they are pretty much sending you an SOS? They have asked you to get a one month unsecured credit by oil companies and have asked to stagger payments over the next few months to airport operators. How soon can we expect a decision one way or the other on these specific demands that have been made?

A: We will have to look at each of the individual demands. Please recognise that the demands that are being placed are on other commercial entities, whether it's the oil marketing companies or the Airport Authority of India (AAI). Like airlines have to report back to their shareholders and are responsible to their shareholders, these commercial entities have similar responsibilities. So, many of these are commercial decisions that will have to be taken at that level. So, we will have to proceed as per the board requirements, as per the governance requirements that these companies have. Policy moves, that we can make as a government, certainly, we will try and move on them as expeditiously as we can. I will give you an example on some of the things that we have been working on with the industry. One of them is getting aviation turbine fuel (ATF) into Goods and Services Tax (GST) and that is a matter that we have discussed at length with the industry. We had several rounds of discussions with the ministry of finance and that matter is now going to go to the GST Council. So, wherever we can intervene at a policy level and make a difference to the industry, we are absolutely moving forward as quickly as we can.

Q: Just on the issue of ATF, this has been a long standing demand of industry and there has been a long process of consultation. When can we expect now to be taken forward as a formal proposal to the GST council?

A: The process of bringing ATF under GST is underway. It's with the GST council to decide when they will be bring it on their agenda and how quickly they deal with it. However, it's a complicated issue as ATF revenues are a very large item for many states and so have to proceed thoughtfully as far as it's concerned. So, we need to make sure that we maintain revenue neutrality as far as revenue collections are concerned. Second, this is a question of what happens to all the hydrocarbons. Obviously, we deal with the ATF, but there is petrol and diesel. Should fuel prices be brought in at the same time? Should we only deal with ATF right now? The whole hydrocarbon question is something that the GST Council has to deal with. The GST Council is also trying to ensure that the whole GST framework stabilises. So, these are the things that they are taking into account.

Q: The question of bringing the entire hydrocarbon sector under the ambit of the GST looks highly unlikely. Most states are not even onboard in principle with the idea. So, are you really looking at waiting to see if there is consensus that emerges with states on that before you take the ATF proposal forward?

A: Absolutely not. We have already taken the ATF proposal forward. As I said, we are pushing it as hard as we can on behalf of the industry. All I am saying is, when these issues go to the GST Council, it has to consider it along with all the other matters that I just mentioned.

As far as our industry and ministry is concerned, we are pushing as hard as we can. We are very fortunate that the ministry of petroleum and natural gas is with us on this and now it's with the GST Council.

Q: I understand that a sectoral review is underway and the civil aviation ministry as well as the finance ministry is working on a sectoral review. Can you give us some colour on where things stand as far as this sectoral review is concerned and specifics? You and I have had this conversation a short while ago as well, what can we realistically then expect? You were right in pointing out that demands the federation had made are commercial in nature as they impact oil companies, shareholders and airport operators, so what can the government do if anything at all to try and provide a lifeline or bailout airline companies in any form of fashion?

A: We have to work at an industry level. We have to look at policies that cut across the industry. Taxation is one such matter that is sovereign and a matter for the government. The other matters that you spoke about such as extended credit for ATF, extending credit for airport charges, as I said, those are commercial matters and they are not taxation matters. But when it comes to the sovereign and government, taxation obviously is an area where we can provide support, which is why we are working on getting ATF into the GST framework. There are also certain issues around import duties for certain types of goods that we are working on. We are working on making things even more conducive for maintenance, repair and overhaul (MROs). We are working on ways in which we can support the aircraft leasing industry. So, there are many other ways in which we can support the industry.

Let me talk to you about aircraft leasing for example as that is a very important and I think a very exciting area that we are pursuing. Right now, our airlines are very exposed to the dollar as when they lease an airbus, when they lease a Boing 737, they are paying that in dollars to the lessors. Of course, the bulk of their revenues are coming in rupees, so they have this huge exposure on dollars, but their actual revenues are in rupees. So, we are trying to find ways in which the leasing can be done in rupees, so that you have rupee payments on the one hand and rupee revenues on the other hand. So you are not as vulnerable to the dollar getting stronger and the rupee getting weaker. So, those are other ways in which we are trying to support the industry that has issues around taxation and policy.

Q: On this rupee leasing mechanism that you just spoke of, how soon can we expect a decision on this front?

A: We have been working on that for more than a year and a half now. Our hope is that in January we can announce a rupee transaction for leasing. Once we can do that, we can demonstrate that this market is for real and our airlines can borrow in rupees and lease in rupees and it reduces the dollar burden that they have.

Q: That is an important timeline that rupee leasing perhaps will be possible in January is what you are telling us. You didn’t confirm whether this sectoral review is underway and if it's, how concerned are you about the state of the aviation industry today? We just gave one example of the kind of losses that Indigo - as that is the market leader - has seen in the second quarter. But every airline whether it's Air India or Jet Airways or SpiceJet is facing similar constraints when it comes to capital as well as costs. So how concerned are you about the health and the state of the industry?

A: Of course, when you talk about the aviation sector that includes airport, ground handling and MRO (Maintenance, Repair, and Overhaul). So, what you are addressing here is the state of our airlines and that is what you are referring to. Our airports are doing very well and many other industries that are associated with the sector are also doing well.

Now, as far as airlines are concerned, airlines are a very cyclical industry. We have good years and we have tough years. Obviously, when oil prices go up, when the rupee weakens as sharply as it did, we are going to go into the down part of the cycle. With oil prices now starting to decline again, rupee getting stronger, hopefully the cycle will turn and many of our airlines will be profitable again.

So, there are external conditions that we simply cannot do much about as they are determined by host of global factors that we have no control over. So, that is one side of the industry dynamics.

The other side of the industry dynamics is the actions of the players within the industry as well. So all of the pricing, all of the capacity decisions, all of the decisions around ancillary revenues for example are made by individual airlines themselves and then establishes the comparative dynamics, the industry dynamics.

Obviously, costs have gone up as oil prices gone up and the rupee has weakened. Because of industry dynamics, these costs not being passed through and that is something that the industry endogenously due to its conduct is doing. It's not something that the government has any influence over as to how they price their product in a deregulated market environment. It's for the players to decide how to do their pricing. So, that is again within the purview of the industry.

As external environment changes and the industry does better and the competitive dynamics perhaps get a little bit more benign, then I am sure the industry will make very healthy profits again. I would like to remind you that in the last three-four years before this downturn, some of our players in the industry generated billions and billions of dollars of market capitalisation. So again we have to look at the industry across the cycle rather than overreacting, when we are in the down part of the cycle.

Q: Let me ask you specifically about Jet Airways as this is the only sort of full service national airlines so to speak at this point in time. I would imagine that the government would be concerned if it were to go belly up and meet the same fate as Kingfisher?

A: No, of course we have Air India, which is also a full service national carrier continues to do very well, when it comes to its operating benchmarks. As I said earlier, we are in a down part of the cycle right now and of course, then it becomes a question of your balance sheet, cost position and comparative strategy as to whether individual players can get through this more difficult part of the cycle or not and that is for individual players to work out.

The same question was asked yesterday by the media and Suresh Prabhuji and I made it very clear that the role of government in market economy is to look at supportive policies for the entire industry as a whole. Individual players then set their own strategies, they set their own financing and value creation approaches thereafter.

Q: Has there been any formal/informal conversation with either Jet Airways or with Tata Sons on the possibility of the two coming together?

A: Those discussions are happening between those parties.

Q: Have they reached out to you in any form of fashion? Have they reached out to the government in any form of fashion or communicated to you their willingness to go through with this transaction?

A: We have discussions with all the industry players on a whole range of issues.

Q: You are not going to say very much more on that, but how worried are you about the possibility of Jet Airways not being able to find a suitor in time? I used those words carefully as they are already sort of staggering out salary payments to pilots etc, they do have similar concerns that the FIA has raised, which we have already spoken about. So, if they don’t find a suitor in time, how concerned would you be?

A: Our first and most important concern is safety and that is what we are intensely focused on, that is what we relentlessly monitor and we are working with all of the players in the industry to ensure that under no account, safety standards or safety protocols or compliance in any way is compromised. So as a result of that, we are always in continuous discussions with each of the players in the industry, we are supervising and looking at their operations and we are constantly in discussions with them. So, that is generally the way that we approach and how we work with the industry.

Obviously, ease of doing business is another are of continuous engagement with the industry. However, when it comes to their commercial decisions, when it comes to their discussions with other parties, that is for them at a commercial level to work on. Obviously, as far as government is concerned, we want all of our players in the industry to flourish, to do well and continue to add capacity. India is still at the very first stage of growth in our aviation sector and so we need everybody to contribute and everybody to continue to enhance connectivity.
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