The Hindu Business Line : Patel to take up service tax on first, business class

Cause for worry

Foreign airlines fear the 12.24% service tax may push passengers to buy tickets abroad
Proposal could also see passengers opting for economy class on short-haul flights

(From left) The ITC Chairman, Mr Y.C. Deveshwar; the Civil Aviation Minister, Mr Praful Patel; the Tourism Minister, Ms Ambika Soni; and the Minister of State for External Affairs, Mr Anand Sharma, at the inaugural session of the 13th South Asia Travel and Tourism Exchange at Pragati Maidan in the Capital on Friday. - Kamal Narang

New Delhi , April 21

The Ministry of Civil Aviation is to take up with the Finance Ministry the issue of levy of a 12.24 per cent service tax on first and business class issued here for international air travel.

"A number of international airlines apart from the International Civil Aviation Organisation (ICAO) and International Air Transport Association (IATA) have written to us on this matter. I will be taking up their concerns with the Finance Minister, Mr P. Chidambaram, and hopefully we should be able to find a solution," said the Minister for Civil Aviation, Mr Praful Patel.

Mr Patel was speaking to newspersons on the sidelines of the South Asia Travel and Tourism Exchange (SATTE) that opened here today.

Apprehensions

Foreign airlines operating from India have expressed apprehensions about the latest Budget proposal pointing out that the move could lead to passengers preferring to buy their tickets abroad rather than pay more for them here.

Airline officials indicated that implementation of the proposal could also see a shift in passengers from first and business class cabins to the economy class cabin on short-haul international flights being operated from India.

Although the President, Mr A.P.J. Kalam, has signed the Finance Act no date has yet been specified for implementation of the service tax on sale of international air tickets.

Merger proposal

Commenting on the proposed merger of Air India and Indian Airlines, the Minister said it was very much on the cards although the route to be followed was being examined.

"Currently various options including whether the initial public offering for the two airlines should happen before or after the merger is being looked at. However, one thing is clear that there are no human resources issues, so no one needs to be worried," said Mr Patel.

No change in FDI views

The Minister added that there had been no change in the Government thinking on allowing foreign airlines to pick up equity stake in domestic airlines.

"For the time being at least foreign airlines will not be allowed to pick up equity in domestic carriers. The current policy that caps FDI levels at 49 per cent is sufficient to meet the needs of the domestic airlines," said Mr Patel.