Why GST could lead to higher flight ticket prices

Mumbai: Indian air carriers, who have been struggling with falling returns, claimed that the newly rolled out Goods and Services Tax (GST) could lead to significant rise in operations costs and a rise in airfares.

According to an article by the Economic Times, airlines claim new levies under GST will saddle the industry with a burden of Rs 4,750 crore. “The new levies can potentially wipe off the profits earned by airlines,” said a senior airlines official.

This is despite the fact that the tax on flight tickets for economy class was in fact reduced from 6 per cent to 5 per cent under GST. However, prices would go up for those travelling by business class as tax rates increased from 9 per cent to 12 per cent.

How can air tickets then get costlier?

1. Taxes imposed on the re-import of aircraft engines and parts after service will cost the industry about Rs 2,000 crore extra per year. This is because of the lack of engine repair centres for aircrafts in India.

2. Interstate transfer of aircraft parts for captive consumption will cost airlines around Rs 2,000 core extra. 

3. 28 per cent IGST on the import of aircraft parts will mean a Rs 500 crore-burden on airlines.

4. Rs 250 crore would be incurred by airlines for import of serviceable parts under service-exchange program.

Analysts said fares may increase on account of these reasons if the carriers do not get any relief. “We expect that the impact over next 12 months may be higher than estimated and request seeking waiver by airlines is logical,” said Kapil Kaul, director and CEO at Centre for Asia Pacific Aviation in India.