Airfares may go up as draft aviation policy moots 2% levy on all routes

Ashwini Phadnis New Delhi | Updated on January 23, 2018


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Money to be used for funding regional connectivity scheme, which proposes Rs 2,500 fare for a one-hour flight

The cost of domestic and international flying from several cities is set to increase. Draft civil aviation policy calls for levy of 2 per cent on all domestic and international tickets on all routes other than Cat IIA and regional connectivity scheme.

The approximately Rs 1,500 crore annually collected from the cess will be used to provide viability gap funding to operate flights in remote areas.

The draft policy, which is now out in the public domain for the next three weeks for stakeholder comment, has suggested the creation of regional connectivity scheme from April 1 next year. The scheme proposes caping fares at Rs 2,500 for domestic flights of about one hour.

"The scheme will be implemented by way of unserved or underserved airports and building no frills airports," the Civil Aviation secretary KN Choubey said.

Boost to MRO sector

To give a boost to the domestic maintenance repair and overhaul sector, the draft policy says service tax on output services of MRO will be zero. It adds that states will be persuaded to make VAT also zero rated. It has proposed that MRO, ground handling, cargo, ATF infrastructure co-located at an airport will also get infrastructure status with benefits under Section 80-IA of the Income tax Act.

Open skies

The draft policy proposes that open skies for countries within 5,000 km be considered with effect from April 1, 2020. Further, it proposes increase in foreign direct investment above 50 per cent if the government decides to go in for open skies.

The policy proposes that ground handling staff will have to be on the rolls of airlines or their subsidiaries or ground handling agency.

"Domestic airlines (including their subsidiaries) and ground handling agency wiĺl be permitted to take contract employees on their rolls. Such employment contract shall be for at least one year", the policy has proposed.

On the 5/20 rule, the policy has proposed three alternatives: One, retain it; Two, remove it completely; Three, airlines be allowed to fly to SAARC nations if they have earned 300 domestic flying credits and for other countries, 600 domestic flying credits. A final decision on 5/20 rule will be taken by the Cabinet.

Make in India: The draft policy pushes Make In India in aeronautics.

The policy proposes separate regulation for helicopters from April 1 2016.

Aditya Ghosh, President, IndiGo, felt that it will be difficult to say by how much their fares will move if the 2 per cent cess is levied. He pointed out that one has to see how the policy impacts the entire sector. The IndiGo President felt airfares could also come down if some other proposals are also implemented.

Other policy reforms:

Greater deregulation, transparency and e-governance

Aviation education and skill building

Promotion of sustainable aviation practices

Streamlining Charter Operations

Published on October 30, 2015

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