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  1. Facing prospect of Rs 5,000 cr hit, Civil aviation ministry flags concern

Facing prospect of Rs 5,000 cr hit, Civil aviation ministry flags concern

The civil aviation ministry has estimated that the sector could be adversely impacted to the tune of nearly Rs 5,000 crore annually, including annual losses of Rs 800 crore to airlines, if the proposed GST is levied on the leasing, supply and import of aircraft and associated parts.

By: and | New Delhi | Published: February 1, 2017 6:25 AM
The presentation said that the current regime doesn’t impose any tax on aircraft, aircraft engines and other assorted parts except a 10% service tax on the finance for leasing and importing aircraft. (Representative Image: Reuters) The presentation said that the current regime doesn’t impose any tax on aircraft, aircraft engines and other assorted parts except a 10% service tax on the finance for leasing and importing aircraft. (Representative Image: Reuters)

The civil aviation ministry has estimated that the sector could be adversely impacted to the tune of nearly Rs 5,000 crore annually, including annual losses of Rs 800 crore to airlines, if the proposed goods and services tax (GST) is levied on the leasing, supply and import of aircraft and associated parts. The ministry presented its concerns and recommendations to the GST council earlier this month.

The presentation said that the current regime doesn’t impose any tax on aircraft, aircraft engines and other assorted parts except a 10% service tax on the finance for leasing and importing aircraft. However, in the GST regime, the import of aircraft would be subject to the integrated goods and services tax (IGST) leading to acute liquidity crunch for the sector.

“Leasing/supply/import of aircraft, aircraft engines and aircraft parts should not attract IGST in line with the current tax regime,” the ministry recommended to the council. It added that GST on lease rentals and IGST on import could be destructive for the sector.

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Addressing another crucial and ambiguous issue, the presentation pointed out the compliance and cash flow burden on the sector would be immense if it’s required to register for GST in each state. It said that while currently the airlines have a central registration under service tax, any inter-state exchange of aircraft, aircraft engines and aircraft parts and services between two registration numbers would be subject to IGST in the GST regime.

“Multi-state transfer of thousands of items on daily basis will need to be tracked, valued, invoiced and subjected to IGST leading to compliance and cash flow burden that could cripple the airlines without yielding any incremental revenue to the governments,” the ministry said. It added that there was no clarity on how the revenue from a particular ticket issued to a customer in a state for travel to two different states would be treated. The GST Council was asked to ensure a centralised registration and payment of IGST. Among other issues flagged in the briefing, the ministry also pointed out that no GST rate for air transport was announced yet. It asked for an output tax on passenger ticket that doesn’t exceed the current service tax rates of 6% and 9% for economy and other classes respectively.

Additionally, the council was apprised of the high value added tax that the aviation turbine fuel would continue to attract in the GST regime as it has been kept out of the proposed system along with other petroleum products. This means airlines wont be able to claim tax credit against the taxes levied on ATF. The presentation recommended that ATF be treated as an infrastructure product and be included under the GST.

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