The civil aviation ministry has written to finance minister Arun Jaitley, urging him to postpone the rollout of the goods and services tax (GST) regime by two months. The move comes after carriers expressed concern that the global ticket distribution system needs more time to be in sync with the new tax system. The industry has also expressed concerns over other aspects in the post-GST regime. Currently leasing of aircraft does not attract any Custom duty, excise or VAT, but under GST it would attract 5%. Also, aircraft maintenance services outside the country will be taxed under the GST against no service tax currently. According to airline executives, this may impact the cash flow of the airlines at a time most of them are under the pressure over increasing fuel prices.
The Federation of Indian Airlines (FIA) has written to the ministry, citing that all the airlines are dependent on the computer reservation system (CRS) and significant amendments would be required to comply with the rules under GST. Hence, the implementation of the new tax should be deferred till September 5.
Sources said ministry officials are in talks with their counterparts in the finance ministry to address some of the issues raised by the airlines. As of now most of the carriers buy planes on lease and the biggest chunk lies with IndiGo. In 2018, airlines like SpiceJet, Vistara, Jet Airways, Air India and AirAsia will look to increase their respective fleet sizes and most of the aircraft will be added on lease.
“We have been talking to the finance ministry officials for a smooth implementation of the GST for the aviation sector. We don’t want inconvenience to be faced by the airlines or other stakeholders of the sector after the implementation,” said a senior official.
Currently, maintenance and repair of aircraft undertaken outside India does not attract service tax in the hands of the recipient carrier. However, under GST services rendered by overseas MROs would attract GST in the hands of the domestic carriers even if the services are performed outside India. Though the carrier should be entitled to input tax credit of the GST paid, it could impact cash flows, said PricewaterhouseCoopers in a note on the impact of GST.
With increase in taxes on aircraft leases, airlines will be able to claim input tax credit which will offset the revenues lost but airlines executives claim that the impact on cash flows will be immense.
“We have plans to expand our fleet in the current fiscal and with the increase in taxes, the cash flows will be hit. Some of the airlines still do their maintenance checks outside the country and the increased tax structure will affect them as well,” an Air India official said.