Indian carriers will become globally uncompetitive as they will lose out to competitors, say airlines

The aviation industry will take a annual hit of Rs. 5,700 crore following the implementation of the Goods and Services Tax (GST), domestic airlines told the Finance Ministry recently.

The Federation of Indian Airlines (FIA), which represents IndiGo, SpiceJet, Jet Airways and GoAir, made a presentation before top Finance Ministry officials on September 27 on behalf of the entire airline industry, saying guideline principles of the new indirect system — revenue neutrality and equity — have been violated by the GST.

“The airline industry will be hit by Rs. 5,700 crore per annum and the GST will make the flourishing sector sick. The Indian carriers will become globally uncompetitive as it will give huge benefit to competing airlines, especially from the Gulf,” the airlines said in their submission to the Finance Ministry.

The airlines further said that the GST, in the current form, was against the objective of “affordability and sustainability” stated in the National Civil Aviation Policy 2016 and regional connectivity scheme UDAN released last year.

Submit proposals

The airlines submitted a slew of recommendations to the Finance Ministry for the “survival of airlines,” an airline executive said. The airlines have demanded that the Integrated Goods and Services Tax (IGST) be not chargeable on re-import of repaired aircraft engine and parts, inter-state transfer of goods for captive consumption and import of serviceable parts under service exchange programme.

Under GST, 18% tax is charged on re-import of aircraft spare parts which were earlier exempted from import duty and service tax. “The GST paid on repairs carried out in India is creditable but not if it takes place abroad. With no engine repair shop in India, it is imperative to send the spares abroad. This will cost Rs. 2,000 crore per annum to the industry,” said another airline executive.

Transfer of spares

Airlines told the Ministry that another area of concern was GST applicable on transfer of aircraft spares, which are kept in central stores, between States on a daily basis. “This move will threaten the survival of airlines and will impact us by Rs. 3,000 crore a year as no input tax credit is available. We demanded GST exemption on stock transfer for captive consumption,” the executive said. The high rate of IGST on import of purchased aircraft parts was another issue flagged by the airlines that might lead to an impact of Rs. 350 crore every year, the FIA told the Ministry.

Aircraft seats and parts and battery are taxed at 28% and nut bolts, aircraft engine and motor is charged at 18% whereas landing gear and propellers are taxed at 5% under GST.

“Tax should not be charged on import of purchased aircraft parts by airlines or it may be charged at 5%,” the airlines demanded. The import of serviceable parts under service agreements for repair, pooling and exchange of aircraft parts signed by airlines globally is taxed up to 28% under GST and will cost Rs. 350 crore a year, the executive added.