India’s aviation industry may have to bear an additional tax burden of up to Rs 15,000 crore annually once the Goods and Services Tax is implemented, top industry executives have told the finance ministry.
Under the current indirect tax regime, the industry has to pay only about Rs 3,600 crore every year, according to industry estimates, while its annual revenue is pegged at Rs 60,000 crore.
The additional tax burden may push airlines, most of which have turned profitable, into losses again, coming as it does at a time when global fuel prices are flaring up.
In a meeting with revenue secretary Hasmukh Adhia on Saturday, the airline executives said the industry will have to bear additional taxes on ticket sales, import of aircraft and aircraft parts, lease rentals, and transfer of spares and goods within the country.
Among those who attended the meeting were members of the Federation of Indian Airlines – IndiGo CEO Aditya Ghosh, Spice Jet chairman Ajay Singh, Jet Airways director-finance Ravichandran Narayan and Go Air general manager-finance Joyakesh Podder – along with executives from national carrier Air India.
“We have raised very serious concerns. It will be a massive burden for the industry, which is already operating in a very tough environment ,” one of the executives who attended the meeting said on condition of anonymity.
The industry submitted a letter to the revenue secretary detailing its concerns. ET has seen a copy of the letter.
Earlier this year, the government proposed a historic overhaul of the taxation structure in India, merging most of the existing indirect taxes into a single system – GST.
ET had on August 5 first reported on the concerns this would create for the domestic aviation industry.
Currently, an airline needs to pay 6% service tax on economy class tickets and 9% on business class, a relaxation on the usual charge of 15%.
No such abatement is likely to be available under the GST regime.
This will mean an additional indirect tax burden of over Rs 7,000 crore, said an executive, who was present in the meeting
In its letter to the revenue secretary, the industry said “the government should maintain current abated tax rate of 6% of economy class and 9% for business class, without any restriction on input credit or categorise airline passenger services under the lowest tax band under GST regime (viz 12%)”.
Import of aircraft and aircraft parts are currently fully exempted from basic customs duty and countervailing duty (CVD) as well as special additional duty (SAD). There is no service tax on operating lease of aircraft, neither is there a sales tax or value-added tax on purchase or lease of planes.
Under the new regime, according to the letter, CVD and SAD will be subsumed under GST for all imports. This means purchase or lease of aircraft parts will attract GST of 18%, the letter said.
This will translate into GST liability of Rs 60 crore on procurement of one aircraft. India’s airlines – led by IndiGo – lease more than 60 planes a year. The annual additional burden will thus be about Rs 4,000 crore.
Besides, there will an additional annual impact of Rs 2,000 crore on lease rentals, the letter said.
Yet another impact will be on stock transfer.
“If a plane is grounded in Chennai and I have to fly in spares from Bengaluru, that will be taxed,” said the executive cited earlier.
The total burden will be Rs 1,800 crore.
Airlines are also worried about compliance requirements and massive additions to paperwork.
“Since airlines operate across the country, we will now have to file multiple tax returns in each state. Also, for each transfer of stock we have to file a different invoice, something we don’t do now. This is extremely cumbersome and will increase paperwork by 100 times,” the executive said.