Cross credits for aircraft lease taxes under the GST system will be a great boost for the local service industry. However, the Government will need to carefully consider the inflationary impact of keeping aircraft fuels outside GST. With increasing liberalisation and focus on infrastructure development, the aviation sector is one of the fastest growing sectors in India. However, certain tax inefficiencies have crept in over the years, some of which are sought to be addressed under the goods and services tax law. The industry is all set to withstand the turbulence which might befall upon them due to the new taxation system. There are some parts of the aviation sector including moving of spare parts welcome a lot of tax. Therefore, GST implementation would not be much of a surprise for the industry.
While the next taxation system has already been in out in the market for almost a month now, there are some uncertainties regarding the system which make the aviation industry concerned about the matter. Lack of information and lack of clarity are the pressing issues that are causing worry, says an executive of the aviation industry.
Airlines operate in a market which is highly competitive. The margins are not too full either. If anything the airline companies deal with thin margins and such a situation lack of clarity regarding any matter can prove to be highly damaging for the business. The movement of goods might get highly taxed due to GST implementation. This is one of the concerns of the aviation companies. In addition to this, the central government has not considered any relief from the tax in regard to the importing of spare parts.
The executives say they feel that ITC input tax credit should be implemented on the economy class as well and only on the passengers of the business class. Keeping in mind the framework regarding GST the airline executives say that they don’t have any clarification regarding any exemption to the movement of goods and the carrier. Even when the goods are not for resale, there is no news of any exemption of any kind.
A senior airlines executive took a moment to explain the situation. Even if the company tried to change a tyre or take out any part of the engine, the company would attract tax due to movement of goods or stock as it has been stated in the GST notice. Whether such a rule exists anywhere in the world is the question which the aviation industry is wondering.
In case the system gets implemented, the companies would have two choices before them. One of them is to pay for the movement of stock each time it occurs. Or, the company would have to keep the inventory at the space of operation. Both the event would force the expense to go too high.
The fact which confuses everyone is the application of GST. This tax applies to both goods and services. Therefore, the input tax credit should provide flexibility for everyone concerned. The input tax credit is not applicable for economy class and therefore, the cost would be passed on to the airline’s company itself, the official has expressed the concern.
The payment of GST on imported aircraft, procurement of goods and also spare parts is not applicable to the economy class. The country’s aviation market has seen a massive growth in the past few years. The domestic airline especially saw the growth.
The industry hoped to attract a large number of passengers going forward. In such a situation, implementation of GST might cause a problem for the industry. Increased cost might create pressure for the business, and as a result, the growth of the industry might face a problem.
However, through a recent study, it has been noticed that the regular flight goers would find GST implementation and the fare of the flights satisfactory. The reduction which took place in the tax system looks to be positive for the people flying domestically on a regular basis.
However, like any other industry whether the airline’s companies agree to pass the benefit of tax reduction on the passengers is something which everyone wants to find out. A huge portion of the revenue which the aviation industry generates comes from the passengers of economy class.
The airlines can charge ITC from the economy class only when they offer input service, while the same tax could be charged with business class on spare parts and food and for other inputs. Apart from food, this tax can be charged with the business class quickly. Though it might sound grim for the business class travellers, the cost increase would be marginal as the hike would be from 9% to 12%.
GST seems to have received a lukewarm reception from stakeholders in the aviation sector. Though it is likely to give a boost to the MRO sector (as the incentive for carriers to undertake MRO services outside India is reduced), the anticipated increase in the cost of fuel has not been well received. In a sector already plagued with high tax and royalty burden, it is hoped that the government may reconsider the exclusion of ATF from the GST regime.