GST could make air tickets costlier

The passage of Goods and Services Tax (GST) bill in the upper house of Parliament has brought a cheer to many industries. However, airlines in the country are afraid that their costs will rise because of this tax, which would eventually lead to higher ticket prices, impacting customers’ pockets and airlines’ cash flow.

The bill will bring in the single-biggest tax reform that India has seen since 1947, replacing various tax structures and following the principle of one country, one tax.

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Senior executives and industry experts have told ET that air travel would likely have a double negative impact on air travel. While it will make tickets expensive since GST on tickets is higher than the current service tax, jet fuel is also not covered under GST, meaning that airlines will not be able to claim credit on the tax they pay on the fuel.

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"While GST is going to be extremely helpful to the manufacturing sector, there are certain difficulties in store for the services sector, including airlines," the finance chief of an Indian carrier told ET requesting anonymity.

The estimated normal GST is pegged at 17 to 19%; while on some 'demeritted' goods like luxury cars, it will be 40%. Concessional goods and services will have it at 12%.

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The airlines sector is most probably going to come under the 17%-19% bracket, as against the 6%-9% bracket that it has currently. This will be making ticket prices cost more by up to Rs 400.

Talking of the aviation turbine fuel, airlines claim a cenvat credit on the central excise duty for fuel under the present rules. However, once GST is implemented, this will be lost.

Other than these two impacts, airlines would also need to pay some compliance costs, since the centralised registration system allows them to have one corporate office, while with GST, they would need to register in each state, adding to their costs and paperwork.

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