Lower service tax on economy class to boost air traffic

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The introduction of the Goods and Services Tax (GST) is likely to continue to fuel the growth in domestic air traffic although the import of private jets for personal use will become more expensive under the new regime.

Kapil Kaul, Chief Executive Officer and Director, Centre for Asia Pacific Aviation (CAPA), South Asia, termed the Government’s decision to levy a 5 per cent service tax on economy class tickets and 12 per cent on business class tickets as a “very good decision which will continue to support the affordable fare regime in the country.”

CAPA expects the high growth rate in domestic traffic to continue in the near term with further upside once the GST’s impact on the economy is visible in one-two years.

“The new rates in the aviation sector generally seem to follow the Government principle that services for the common man be kept at lower rates. This probably explains why economy class is being pegged at 5 per cent (down from the 6 per cent earlier) and business class tickets at 12 per cent up from 9 per cent,” said Anita Rastogi, Indirect Tax, PwC.

Major airlines like IndiGo, Spicejet and Air India declined to comment on the GST regime saying they had to study the impact on their operations. There is an apprehension that the sale and lease back route that many airlines follow to bring aircraft into India could now be subjected to a higher service tax.

If this were to happen then it could affect the operations of scheduled airlines.

Importing aircraft for personal use will become dearer as it will attract a service tax of 28 per cent.

"Overall this seems like a good move for the sector and should help the growth momentum continue. Economy airfares will get marginally cheaper which should drive continued passenger growth in the air market, while Business Class will see a moderate increase,” said Sharat Dhall, COO (B2C), Yatra.com

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