GST may impact air ticket prices by 9-12%, says report

An aviation thinktank has warned that the Goods and Service Tax (GST) could have some impact on the aviation sector as it could lead to a 9-12% rise in ticket charges. “Although intended to simplify India’s complex tax code, and generally viewed as being positive for the economy in the long term, a higher effective tax rate for economy class air travel could possibly increase fares by 9-12%,” the India Aviation Outlook 2017-18 report by Centre for Asia Pacific Aviation (CAPA) stated.

“Given the price sensitivity of Indian passengers, this could have a significant negative impact on demand. The implementation of GST may also result in higher upfront costs for aircraft and leases, spares and parts, and distribution costs, increasing cash flow requirements, although airlines will receive input tax credits later,” it added.

The government is pushing for a new tax regime this year. The report also pitched for an “urgent review” of the country’s civil aviation policy, warning that it could “prove to be a hindrance” to the development of the sector.

The India Aviation Outlook 2017-18 report said that “design flaws” in the policy, particularly with respect to regional connectivity, ground handling and bilateral policy, mean that it will be “difficult to implement in practice”. It could “inadvertently act as an obstacle” to achieving desired objectives, the report warned.

The Ministry of Civil Aviation had unveiled India’s first Civil Aviation Policy in June last year, announcing a scheme to connect remote towns by air, besides rewriting a controversial rule that restricted new domestic airlines from flying abroad till it completed five years and had 20 planes in its fleet.

It said the policy was a “document almost 20 years in the making”. While welcoming such a move, the CAPA said, “The National Civil Aviation Policy (NCAP) requires a thorough review to ensure that India has a policy that will deliver the aviation sector that it needs.”