The Ministry of Civil Aviation (MoCA) has asked the Union government to defer the implementation of Goods and Service Tax (GST) by two months as some of the airlines, including national carrier Air India, have expressed their apprehension at meeting the deadline which is scheduled from July 1.
The ministry said the major airlines are dependent upon the global distribution system (GDS) software for booking tickets, and it will require major changes in the system for amalgamating the new taxation regime. The letter to Hasmukh Adhia, Revenue Secretary, was reportedly written by Civil Aviation secretary Rajiv N Choubey on Monday.
Interestingly, on Wednesday, Adhia had tweeted that rumours about GST implementation being delayed were false, and people should not be misled by it.
In their letter to the government, the MoCA also raised concerns, claiming that the GST regime will benefit foreign carriers more than domestic ones for two reasons, i.e., input tax credit and international travel. Therefore, a full tax credit should also be extended to economy class travel as well.
The differential input tax credit between the economy and business classes will adversely affect airlines, rating agency ICRA had stated in its latest report released in May.
"With the airlines generating a major portion of their revenues from the economy class, disallowance of input tax credit on inputs (excluding services) for the economy class will result in an additional cost to the airlines," said ICRA's assistant vice president and co-head for corporate sector ratings, Kinjal Shah.
The Indian airlines, sources say, are also concerned that the new taxation system will favour foreign carriers over domestic ones, and thereby making fares for direct flights to be higher. Under the new law, non-stop flights will become more expensive in comparison to the stop-over flights. This may prompt passengers to book flights with Gulf-based carriers who have their bases in their respective countries.
The ministry has also asked the government to reconsider the inter-state transfer of the spare parts not meant for resale. This will help in reducing the maintenance cost.
The letter by the MoCA comes after a number of letters written by airlines lobby group International Air Transport Association (IATA), has in the past written to the government as well as the MoCA saying that the airlines even though like to adopt the GST, however will not be able to comply due to sheer lack of guidelines for its application. Civil Aviation Minister Ashok Gajapathi Raju had earlier written to the finance ministry suggesting several methods through which the airlines that will not be able to take input tax credit on aviation turbine fuel under GST can be compensated.
The GST tax rate on air travel has been fixed at 5 per cent, which is lower than the prevailing rate of 6 per cent and 9 per cent for economy and premium travel, respectively.
Commenting on the development, Bengaluru-based aviation analyst Devesh Agarwal said, "When the entire country is gearing up towards the GST roll-out, I do not understand why the civil aviation sector wants its deferment. Every sector has issues with something or the other and they trying to address it with the government. The civil aviation sector should do the same".
...& ANALYSIS
- The ministry’s request to defer the implementation of GST may now prompt other sectors to demand similar extensions.
- It should handle the situation like other ministeries are doing.
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