Under new GST, economy class air travel set to become cheaper from July 1

Industry experts say that today’s announcement is in line with the government’s aim to make flying affordable for the masses.

HIGHLIGHTS

• 1. Economy class air travel will become cheaper under new GST.
• 2. Tax rate fixed at 5 per cent against existing 6 for economy class air travel.
• 3. Business class tickets will become dearer as tax will go up to 12 per cent.

Economy class air travel will become cheaper with tax rate fixed at 5 per cent against the existing 6, under the upcoming Goods and Services Tax (GST) regime from July 1.

However, for those travelling business class, tickets will become dearer as the tax will go up from 9 per cent to 12 per cent.

Industry experts say that today’s announcement is in line with the government’s aim to make flying affordable for the masses.

“Government’s decision to levy 5 per cent and 12 per cent tax for economy and business class is a very good decision which will continue to support affordable fare regime in India. The government was sensitive to the impact of higher GST slab on industry and the consumer is significantly positive,” according to Sydney-based aviation think-tank CAPA Centre of Aviation.

The GST Council finalised four tax rates of 5, 12, 18 and 28 per cent to apply on services including telecom, insurance, hotels and restaurants.

CAPA also said that this is likely to further boost domestic aviation traffic, where India is at the third spot.

India’s domestic air passenger traffic stood at 100 million in 2016 and was behind only to the US (719 million) and China (436 million).

“Expect high growth rate in domestic traffic to continue in the near-term with further upside once the GST impact on the economy is visible in 1-2 years,” it added.

The sentiment was echoed by travel portal Yatra.com.

“Overall, this seems like a good move for the sector and should help the growth momentum continue. Economy airfare will get marginally cheaper which should drive continued passenger growth in the air market, while business class will see a moderate increase,” Sharat Dhall, COO, Yatra.com.

The 5 and 12 per cent tax rates come as a huge relief for the industry, which had expressed concern over the draft GST law released last year pegging tax rate at 17 per cent to 18 per cent. This, as per a PwC study, would have led to a 9 per cent to 12 per cent increase in the cost of air travel for passengers.

A reason for keeping GST on passenger travel low is because airlines cannot claim credit on aviation turbine fuel under the GST regime.

Currently, airlines can claim what is called a cenvat credit on the central excise duty for fuel. They will now lose as petroleum products, including ATF, are outside the purview of GST.

However, purchase of aircraft meant for personal use, has been put under the highest slab of 28 per cent. This will also invite an additional cess of 3 per cent.