GST shock for Indian airlines

June 12, 2017 by  
Filed under Aviation, News, South Asia

NEW DELHI, 12 July 2017: Indian airlines will face additional costs as they prepare to pay Goods and Service Tax 1 July, but the tax bill will be even steeper for hotels and restaurants.

The GST has been fixed at 5% on domestic airline tickets  and 12% on international ticket sales.

Tour operators in India will pay 5% GST without an input tax credit facility.

Rail travel will also be subject to a 5% tax without ITC.

Hotels and lodgings are hit the hardest with GST varying from 12% to as high as 28% depending on their published tariff.

Hotels charging between INR1,000 and 2,500 will be charged GST of 12%,  Hotels with a tariff of  INR2600 to 5,000 18% and hotels with rates higher than INR5,000 28%.

Food and beverage, entertainment, admission to shows and cultural performances, drama and sporting events will pay 18% GST.

Less than a month ahead of the GST launch airlines have complained of a lack of clarity claiming it will increase their operational costs and raise the cost of air travel.

Introduction of GST is likely to raise the cost of airline spare parts. There is a lack of clarity on whether airlines will pay GST on the movement of aircraft parts and the Indian government’s decision not to provide relief with regards the import of aircraft and spare parts.

Another negative for airlines is the restriction on input tax credit (ITC), which  will only be available for business class travel and not for economy class travel.

Business travel fare GST can be offset against the GST a company has to pay, but not for economy class travel.

With the country’s domestic aviation market growing at double digits for more than two years, domestic carriers are looking to attract more passengers, but low fares along with rising fuel costs have impacted on their overall profitability.

Against this backdrop, executives feel that higher taxes on different fronts could further put pressure on the airline business in India.

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