IMPACT OF GST ON CIVIL

AVIATION INDUSTRY

PREPARED BY:

Vedika-17BSPHH01C1226
Meghana-17BSPHH01C0608
Sai Sravan-17BSPHH01C0882
Kanika-17BSPHH01C0494
Shivangi-17BSPHH01C0987
1. Introduction To Aviation Industry

2. Trends in Aviation Industry-past & present

3. Introduction to GST

4. GST impact on Aviation Industry

5. Price Comparison (Pre And Post GST)

6. Future growth of Aviation Industry

7. Latest Update Regarding Impact On

Aviation Industry

8. Conclusion
1. Introduction to Aviation Industry

The history of Aviation industry started in 1912 with its first

domestic air route between Karachi and Delhi. In order to
strengthen the Aviation industry, during 1953 domestic civil
aviation sector has been nationalized and brought under the
purview of Government. When the Government adopted the
Open Air policy and other Liberalization policies during 1990’s,
the Indian Aviation industry made underwent a rapid and
dramatic transformation.

Recently, the civil aviation industry in India has emerged as one

of the fastest growing industries in the country for the past
three years. India is currently considered the third largest
domestic civil aviation market in the world with private airlines
accounting for more than 75% of the Domestic Aviation sector.
The Civil Aviation industry has ushered in a new era of
expansion, driven by factors such as low-cost carriers (LCCs),
modern airports, Foreign Direct Investment (FDI) in domestic
airlines, advanced information technology (IT) interventions and
growing emphasis on regional connectivity.

The Indian Aviation industry is broadly classified into three

main categories:
1. Scheduled Air transport services
2. Non-Scheduled Air transport services
3. Air Cargo services
With the advancement of technology and other IT related
services, Government of India considered it as a prestigious
aspect to develop the Aviation industry to complete with Global
Aviation industry.
2. Trends in Aviation Industry-past & present

Passenger Traffic:
Till FY.2005-06 passenger traffic was around 73.4 million.
However with the increase in per capita income of individuals
and introduction of Foreign Domestic Investments (FDI), Public
Private Partnerships (PPP) in Aviation industry, it has recorded
a strong growth in handling passenger traffic which rises to
around 265 million in FY.2016-17.

Freight Traffic:
During the FY.2005-06 domestic and international freight
traffic stood at 484 million tons and 920 million tons. With the
Globalization and Liberalization policies domestic traffic rises to
608 million tons which shows an increasing growth rate since
FY.2005-06 while on the other side International freight traffic
stood at 1,071 million tons with upside down.

Other notable changes:

 An investment under Public Private Partnerships (PPP) during
the 12th five year plan is expected to increase by 69.1% over
the 11th five year plan.
 Number of Aircrafts operating is gradually increasing over time
due to the private participation.
3. INTRODUCTION TO GOODS AND SERVICE TAX

The introduction of the Goods and Services Tax will be a very

noteworthy step in the field of indirect tax reforms in India. GST
is “one indirect tax” for the whole nation, which will make India
“one unified common market”. It is a single tax on the supply of
goods and services, right from the manufacturer to the
consumer. Credits of input taxes paid at each stage will be
available in the subsequent stages of value addition which
helps in the elimination of Cascading affect.

It is essentially a tax only on the value addition at each stage.

The final consumer will thus bear only the GST charged by the
last dealer in the supply chain, with set-off benefits at all the
previous stages. This is expected to help broaden the tax base,
increase tax compliance, and reduce economic distortions
caused by inter-state variations in taxes.

By merging a large number of Central and State taxes into a

single tax, GST is expected to significantly ease double taxation
and make taxation overall easy for the industries. For the end
customer, the most beneficial will be in terms of reduction in
the overall tax burden on goods and services. Introduction of
GST will also make Indian products competitive in the domestic
and international markets.
4. IMPACT OF GST ON AVIATION INDUSTRY

Fare Prices of Tickets:

Air Travel is under low service tax rate in the form of
abatement. Previously, Service Tax rate on air travel ticket after
abatement was 6% in case of economy class and 9% in case of
business class. Whereas in GST, Rate is 5% with ITC in
economy class and 12% with ITC in business class, which
results in an excess burden of 3% in business class on the air
travel tickets, adversely affects the growth of the industry. This
has increased ticket prices which are impacting the cash flow.

Cost of Fuel:
Jet Fuel is outside the scope of Structured GST Regime,
therefore credit of Tax paid on Aviation Turbine Fuel is not
allowed which further increases the input cost, thereby
increase in Ticket Prices.

Leasing of Aircraft:
Under financing lease agreement of Aircraft, Service Tax was
chargeable only on 10% of lease rental value. Means there was
90% abatement in Leasing of Aircraft and under the operating
lease agreement; previously custom duty was not leviable. In
the starting phase Under GST, cost of aircraft import under
lease had increased as GST @ 5% is chargeable. But, after
considering the fact that leasing reduces the cost of airline
operations, Revenue Department has pegged the IGST levy as
‘nil’ on aircraft imported on the lease.
Repairs and Maintenance:
Previously, both Service Tax and VAT were charged on repair
and maintenance of aircraft resulting in higher tax burden.
Under GST model, it is treated as pure service transaction
where supply include both goods and services thus helps in
removing the cascading effect of the tax on tax.

Import of Aircraft and its spare parts:

Import of aircraft and its spare parts was exempted from
customs duties. Under GST there is an exemption on aircraft
import via leasing route. This move has bought big relief to civil
aviation industry by resolving the issue of double taxation.

Compliance Cost:
Under the last Tax Law, only single registration of service tax
was required to take. Now under GST, registration is required
to take in every state from where supply is taken place. Thus
Carrier has to take registration in every state where passengers
are located and from where the flight embarks. The 28%
integrated GST on parts of airline and aircraft while
transferring inter-states, this is increasing the compliance cost
and most of the engines are on hold with customs which is
impacting the smooth operation of the aviation industry.

Payments to CRS companies-Increase in costs:

Currently, services rendered by overseas Computer Reservation
Systems companies do not attract service tax since the place of
supply for such services are deemed to be outside India. Under
GST regime, services rendered by overseas CRS companies
attract GST tax in the hands of the domestic carriers. Though
the carrier should be entitled to input tax credit of the GST
paid, it could result in a cash flow issue.
Transportation of cargo:
Unlike the current regime, where the place of supply for
transportation of cargo is the destination of the goods, under
the GST law, the place of supply is segregated for B2B and B2C
supplies:
For B2B supplies, the place of supply would be the location of
such registered person.
For B2C supplies, the place of supply would be where the goods
are handed over for transportation.
This means that export cargo, which was hitherto not subject to
service tax, would attract GST. Of course, the exporter may be
able to claim a refund of the GST charged, but this could lead
to cash flow issues.

Tax impact for international flights:  

Under the current indirect tax regime, international air travel is
subject to service tax on the ticket fare for both the outward
and return leg, (less applicable abatements), so long as the air
travel commences in India.  However, air travel commencing
outside India is not subject to service tax.
 Under GST Law, air travel commencing outside India will now
be subject to GST in India, if provided to customers registered
under the GST.
Further, GST Law stipulates that a return journey will be
treated as a separate journey and will be taxable in India if
such services are provided to customers registered under GST
in India.  However, where customers are not registered in India,
the return journey will not be taxable.
Realignment of ticketing structure:
Place of supply for air travel: The GST Law stipulates guidelines
to determine the place where supplies will be taxed.  Detailed
provisions that determine the place of supply of goods and
services are also provided. These guidelines divide the place of
supply for air travel services under two sub-heads:

Supplies made to customers registered under GST:

Under this head, the place of supply is deemed to be the
location of the registered person.  Location in this case refers to
the premise of the recipient where the supply is received.  In
case such premise is indeterminable or is multiple in number
then the place most directly concerned with the receipt of
supply will be considered the registered place of such person. 
Therefore, for such customers (including individuals,
proprietary concerns etc.) carriers will have to ascertain, on a
ticket to ticket basis, whether such supplies would qualify as
an inter-state supply (subject to Integrated GST, levied by the
central government) or an intra-state supply (subject to Central
GST (levied by the central government) and State GST (levied by
the State governments) on intra- state supplies);
 
Supplies made to customers not registered under GST:
The place of supply in this case is deemed to be the location
where the passenger embarks for the journey.  Carriers will
have to pay GST in such State if they are located in that State,
and if not, will be required to pay Integrated GST.  This will
increase compliance costs for carriers.
5. Price Comparison (Pre And Post GST)

Current Taxation vs. New Regime

The Services Tax is applicable on all bookings made; be it for the
economy class or for business class. Tax rate under the VAT regime
is:

Under the new regime, the GST Council has lowered the tax rate for
economy class flight tickets to 5%. However, the business class tickets
will attract a higher tax at 12% after GST implementation from 1 July.
Thus, the revised scenario will be:

A Comparison of Prices – Pre and Post GST

Domestic air travel is clearly going to see a boost post GST with air
prices reducing. Budget travellers, therefore, have a reason to cheer
and plan for the upcoming holidays. The difference can be seen in the
table below:
On the other hand the business class fares are going to cost higher, however,
it is only a marginal increase from 9% to 12%. This slight increase in travel
prices is probably not enough to deter business travellers from their
travel plans.

The goods and services tax (GST) on the economy class air travel
has been finalized at 5%, which is 100 bps lower than the existing
service tax rate. However, GST on business class air travel has been
announced to be 12%, which is 3% more than the existing service tax
rate. The reduction in tax rate is positive for low-cost domestic carriers.
A major portion of the revenue generated from airlines comes from
economy travellers. Moreover, airlines can only claim ITC on input
services for the economy class while for the business class they can
claim ITC for spare parts, food items and other inputs, apart from fuel.
6. FUTURE GROWTH OF AVIATION INDUSTRY

With the growing demand due to increase of middle income

group and working population, rising domestic and foreign
tourists and travelers and strong growth in external trade along
with the support from government through various policies and
reforms such as Liberalization, Foreign Direct Investments,
Open sky policy and policy sops, investments in aviation
industry increases.

7. Latest Update Regarding Impact of GST on

Aviation Industry
It has been almost 3 months after GST implementation and now
Civil Aviation Industry can easily evaluate its benefits and
drawbacks under GST. There are many complaints from airlines
that GST has increased the total cost and they have to increase the
ticket prices to sustain the tax burdens.
A senior executive of an airline has explained that there will be INR
4750Crore burden on the airlines due to GST implementation and
it will increase the operational cost of industries. The tax burden of
GST will leave the airlines in a huge loss and airlines are looking
towards the government to relieve the industry by reducing the tax
burden.
In a survey conducted in March, there were only Indigo, Jet Airways,
Spice jet, and Go Air was generating the profit and others such as
Air India, Vistara, and Air Asia was in a loss. After GST
implementation in July, there is a tax on exporting second times
the engine and other airlines’ parts. As in India, the engine
repairing facility is not available and sending the engine out of
India is the only solution to get repaired the engine. The
repercussions of this are industry will bear INR 2000Crore tax
burden and subsequently, the ticket prices will go high.

8. Conclusion:

GST seems to have received a lukewarm reception from

stakeholders in the aviation sector.  Though it is likely to give a
boost to the MRO sector (as the incentive for carriers to
undertake MRO services outside India is reduced), the
anticipated increase in cost of fuel has not been well received. 
In a sector already plagued with high tax and royalty burden, it
is hoped that the government may reconsider the exclusion of
ATF from the GST regime.