Will Airlines Cut Air Fares After GST Rollout? Do not Depend on It

Express News Global

Airline companies might hesitate to hand down the advantages of lower taxes to travelers, a report stated.

Last Updated: May 24, 2017

GST on economy class tickets has actually been decreased to 5 percent.
GST on economy class tickets has actually been decreased to 5 percent.

New Delhi: The Goods and Service Tax (GST) for a lot of services and items have actually been settled by the GST Council headed by Union Finance Minister Arun Jaitley in Srinagar recently. As the Ministry of Civil Aviation aims to make flying cost effective for the masses, GST on the economy class flight has actually been decreased to 5 percent, down 100 basis points from the existing service tax rate. On the other hand, GST on service class flight has actually been raised 3 percent to 12 percent. Nevertheless airline companies might not move the advantages of a lower tax on economy class tickets to guests, stated credit ranking firm ICRA Ltd, including that the GST tax reforms will not have any product influence on air guest development either.

” With airline companies creating a significant part of their profits from economy class, disallowance of input tax credit on inputs (omitting services) for economy class would lead to an extra expense to the airline companies. In the present circumstance of pressure on yields due to increasing capabilities and competitive strength, the capability of the airline companies to hand down the increased expense to the consumers too will be limited,” Ms. Kinjal Shah, AVP and Co Head, Corporate Sector Scores, ICRA Limited, stated.

Breaking down the numbers, ICRA stated while airline companies can declare input tax credit on inputs such as extra parts, food products and so on however not on fuel charge on service class, for economy class they can just declare input tax credit on input services. In the present tax program airline companies can declare Cenvat (Central Worth Included Tax) credit on all inputs (services and products) leaving out air travel fuel.

On Monday ICICI Securities released a robust incomes outlook for India’s air travel market in the April – June quarter, mentioning a strong rupee, lower crude rates and much better fares.

Discussing the decrease in GST tax guidelines for economy class air tickets, ICICI Securities stated that “This is incrementally favorable for low expense providers like IndiGo, SpiceJet, Go Air, and Air Asia.” The report kept in mind that boost in service tax from 9 percent to 12 percent for premium class flight under GST is “incrementally unfavorable for service class section of complete providers like Jet Airways, Air India and Vistara”.