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No credit set-off in GST, airlines see red

Airlines say they face Rs 400 crore loss annually as no set-off is available for imports of aircraft

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The domestic airline industry is being double-taxed under the newly introduced goods and services tax (GST), which, if not corrected by the government, could lead to a loss of over Rs 400 crore per annum to the airlines collectively, industry officials said. It could also lead to an increase in airfares.

Under GST, there is a levy of 5% on import of aircraft.

"Industry is discussing with the civil aviation ministry for exemption of tax on imports. We will also have to pay 5% GST on lease rentals available for credit set-off," said Amar Abrol, MD of CEO, AirAsia India. "Only GST paid on services is available for credit set-off; GST paid on purchase/import of goods is not available," he said.

The airline industry has approached the civil aviation and finance ministries in this regard. As per an estimate, the airline would have to pay about Rs 10-12 crore per aircraft import as GST levy.

The development seems significant, as Indian airlines have over 1,000 aircraft on order and the country is set to become the third-largest buyer of commercial passenger planes in the world, behind only the US and China. A recent report released by aviation consultancy firm CAPA states for every aircraft in service, there are 2.2 aircraft on order. There are around 480 aircraft in the country at present.

Out of the total orders in place, IndiGo, which is a market leader with about 40% share, has the largest number of aircraft on order at 450.

SpiceJet, which has managed to revive itself from the verge of shutting down a few years back, has placed an order of 205 Boeing Max 737, whose deliveries will start by mid-2018. The airline has also signed a letter of intent with Bombardier to buy 50 Q400 turboprop aircraft.

SpiceJet and IndiGo did not offer any comment.

Meanwhile, Abrol, who took over the operations of AirAsia India around three years back, said his airline is currently earning a gross profit on around 60-70% of routes it operates. The airline currently operates on 78 routes with a fleet of 11 aircraft. They expect to take it up to 14 by around Diwali festive season and to 20 in another year, after which the airline will get the right to fly internationally.

The airline has so far invested around $75 million and had clocked revenue of about Rs 1,000 crore last year (FY 2016-17).

...& ANALYSIS

  • A report by aviation consultancy firm CAPA states for every aircraft in service, there are 2.2 aircraft on order
     
  • This is key as Indian airlines have over 1,000 aircraft on order, making it the third-largest order
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