Domestic Air Fares May Rise As Airlines Claim GST Raised Cost Of Operations

Indian airlines are seeking relief under the goods and services tax (GST) regime, which they say has added significantly to costs in an industry struggling with lower yields and could lead to higher fares.

“New levies under GST are set to cause a burden of Rs 4,750 crore for us, thus increasing our cost of operations, which has the potential to make the airline industry sick,” said a senior airline executive. “The new levies can potentially wipe off the profits earned by airlines.” India’s three listed carriers — IndiGo, Jet Airways and SpiceJet — made a cumulative profit of Rs 2,479 crore in the year ended March.

Among the non-listed carriers, GoAir is the only profit-making airline, the others being Air India, Vistara and Air Asia India. Under GST, rolled out on July 1, taxes have been imposed on the reimport of aircraft engines and parts after service, which is set to cost the industry about Rs 2,000 crore extra per year. “There are no engine repair shops in India and we are forced to send aircraft engines for repair outside,” said the executive.

The other levies include the interstate transfer of aircraft parts for captive consumption and higher rates of up to 28% integrated goods and service tax (GST) on the import of aircraft parts, among others. “The government talks of making in India but these levies will only make Indian airlines globally uncompetitive, thus giving a huge advantage to competing foreign carriers, such as the Middle Eastern carriers,” said another executive.

Analysts said fares may be increased if the carriers don’t get any relief, which could erode passenger growth. “We expect that the impact over next 12 months may be higher than estimated and request seeking waiver by airlines is logical,” said Kapil Kaul, director and CEO at Centre for Asia Pacific Aviation in India. “GST council has been open to making changes wherever necessary and we expect a favourable outcome on this issue too.”

The airlines approached the government on the matter and have been told to approach the GST Council. Sources in the aviation ministry said they were aware of the issue by airlines and will help them raise the matter on the right platform.

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