Goods and service tax to have minimal impact on flight tickets

Key Highlights:

• GST on economy class at 5% and business class at 12%
• GST to impact airline flight tickets only marginally.
• Airlines to be impacted by disallowance of Centre to claim input tax credit on ATF and input services.

Goods and Service tax (GST) will have only a marginal impact on the prices of flight tickets by airlines, research and credit agency, ICRA said on Wednesday.

“In ICRA’s view, these (GST) rate changes are not material, and should not have any major impact – positive or negative – on the air passenger growth. However, the lowering of tax rate on economy class travel is in line with the focus of the Ministry of Civil Aviation to make flying affordable for the masses,” the report said.

GST has put tax rate on the economy class at 5%, which was earlier at 6%. While the business class has risen from 9% to 12%, making it more dearer.
 
This move by the government has been seen to make air travel in the economy class more affordable.
 
However, ICRA said that the tax credit being claimed on input costs of all goods like spare parts, food items by the airlines besides aviation turbine fuel (ATF) which will impact airlines adversely.
 
“This is as against the current service tax regime, where airlines can claim cenvat credit on all inputs (excluding ATF) for both economy and business classes,” ICRA said.
 
However flight tickets of the economy class on airlines is expected to be impacted because of input tax credit, ICRA said.
 
“With airlines generating a major portion of their revenues from economy class, disallowance of input tax credit on inputs (excluding services) for economy class would result in an additional cost to the airlines,” Kinjal Shah, AVP and Co Head, Corporate Sector Ratings, ICRA said.

“Furthermore, under GST, while airlines can claim input tax credit on all inputs (refers to all goods purchases and includes among others purchase of, etc, but excludes aviation turbine fuel (ATF) since it is not under the purview of GST) on the business class; for the economy class they can claim input tax credit only on input services,” ICRA report said. 

Shah further added, “In the current scenario of pressure on yields due to increasing capacities and competitive intensity, the ability of the airlines to pass on the increased cost to the customers too will be restricted.”