The Hindu Business Line : Service tax jacks up I class international air fare

The Government decision to impose a 12.24 per cent service tax on first and business class international air travel has put an additional burden of around Rs 9,000 for a passenger travelling business class between India and Singapore to almost Rs 57,800 for a passenger flying first class on the Delhi-Chicago-Delhi sector.

Coverage of service tax widened

The Finance Minister, Mr P. Chidambaram, widened the coverage of service tax in his 2006-07 Bbudget to include international air travel by first and business class. The tax came into force from May 1 this year.

The international airline industry, which is already reeling under the burden of growing fuel bill with international oil prices continuously moving up, has vehemently opposed the Government move.

`Retrograde step'

"The step is retrograde and will send out a negative message to the international business community," said a senior official of an international airline. A host of international agencies including the International Air Transport Association (IATA) have also written to the Government on the issue. The Ministry of Civil Aviation is to take up the issue about implementation of the service tax with the Finance Ministry.

Scope of its application sought

However, there are sections in the industry that have accepted the Government decision but have sought greater clarity on how to implement the new tax provision. "Any new tax and levy should very clearly define the scope of its application bearing in mind the dynamics and market realities of the airline business. To have a tax imposed upon the industry without an understanding of its working will tend to not only create ambiguity and result in a variety of interpretations but will effectively deny the passenger genuine savings which he may otherwise be entitled to," said an airline representative.

The German airline, Lufthansa, offers a special restricted business class fare of Rs 68,465 (not including the service tax and other taxes) for travel between Delhi and Frankfurt. Similarly, Kuwait Airways has a limited time business class return fare to Frankfurt which costs Rs 83,871 and on which the service tax is Rs. 10,265.