Airlines have asked the government to set the goods and services tax (GST) at 15% and retain existing tax exemptions to avoid fare hikes.
GST, which aims to economically unify the country, will subsume most of the indirect taxes levied by the centre and the states including excise duty, service tax, value-added tax, entertainment tax and luxury tax. The tax is expected to be implemented next year.
The current rate of service tax is 14% and adding Swachh Bharat Cess and Krishi Kalyan Cess, airlines pay 15% tax.
“Under no circumstance should GST exceed 15%,” said an airline official, who did not wish to be named, referring to the submission made to the government last week. “It would hamper growth in the fastest growing aviation market in the world.”
Airlines expect a 9-15% increase in airfares if the GST is set higher.
A group of airline officials met state finance ministers and aviation ministry officials last week to convey the implications of the new regime to the sector.
Most of India’s airlines have been making annual losses over the past few years and some are loaded with high debt. A plunge in fuel prices from a peak of $140 a barrel has seen some airlines report profits in the last fiscal. Fuel makes up of about 40% of their total cost. Cheaper fuel has allowed airlines to offer fares that are sometimes cheaper than railway fares in premium trains.
Airlines have, therefore, also requested the government to exempt them from paying duty on fuel surcharge component of the airfare.
Most airlines typically mention the amount of fuel surcharge on every ticket, which is part of the overall price.
“This is based on the reason that duty has already been paid on ATF (aviation turbine fuel) and the same has not been allowed as credit. Hence, levying GST on that portion of fare will result in double taxation,” said another airline official, who too declined to be named.
Airlines also want certain exemptions to continue.
For example, they way want the current policy of no service tax on journey starting from or terminating in north-east and those from Jammu & Kashmir.
They want a continuation of no service tax on payment of aircraft lease, import of aircraft, on aircraft parts and its repair and maintenance.
They also don’t want new taxation on sale of passenger air miles and loyalty programmes as is being proposed under GST.