Ground realism for Aviation industry

It is feared that almost all Indian carriers are in the red, serving one of the world’s fastest growing economies and registered unprecedented growth in traffic. Indian aviation is the ninth largest market in the world and significantly contributed to business, trade and tourism growth in the past decade.

The transportation sector has been impacted by several factors including high operating costs fuelled by high oil and tax cost, cash crunch and soaring debts. Being one of the most important growth in any economy, and air travel has become a necessity and no longer a luxury.

The saving of sales tax on import of ATF is an attractive proposition for airlines. However, they have to use the existing infrastructure of the oil marketing companies (OMC). As India is an ATF-surplus country, direct import by airlines would necessitate finding new export markets for the OMC’s surplus stock. The sector looks toward the Government for tax rationalisation, which most of them believe would be enough for them to soar again, and fuel the growth of the world’s most promising economy.

“ATF pricing mechanism is based on import parity with a black box which currently includes irrational elements and tax on taxes. If a person travels by road or rail, he is using highly subsidised infrastructure or subsidised electricity/ diesel, thereby making a much larger hole in the exchequer. We are only requesting rationalisation of taxes,” says G.P. Gupta, Chief Administrative Officer, SpiceJet.

Passenger Service Fee and User Development Fee, collected on behalf of the Airports Authority of India, suffer service tax thereby pushing up ticket cost, which has outpaced the spending power of customers. According to Gupta, “A major portion of aviation losses is attributable to high taxation.” It is not just the tax, but also the tax on tax which becomes excruciating! For example, several airport operators charge fuel throughput fees from the OMCs. This throughput charge plus service tax forms part of the ATF cost on which sales tax is charged by OMCs, leading to a cascading tax effect.

Passenger Service Fee and User Development Fee, collected on behalf of the Airports Authority of India, suffer service tax thereby pushing up ticket cost, which has outpaced the spending power of customers.