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Service tax likely on all classes of air tickets
August, 22nd 2006
Airlines, already reeling from high oil prices and stiff competition, are flying into tax turbulence now. The revenue department has shot off letters to leading airliners including Air-India, Jet Airways, KLM, Air Malaysia, Virgin Atlantic and Indian, seeking details about their fare structure and the service tax paid by them on first and business class tickets. The move is seen as a precursor to tougher implementation of service tax on premium air fares which could ultimately burn a larger hold on the pockets of passengers. The government has subjected premium-class air travel to service tax of 12%, despite protests from the industry. Now, the revenue department wants all classes of fares, except the cheapest economy class tickets, to be brought under the service tax net. This type of tax is not levied by any other government in the world, said a senior official working for a foreign airline in India. Officials of the department also want all components of premium class air fare including fuel surcharge to be subjected to service tax. According to highly-placed sources, the letter from the service wing of the revenue department has sought details from the airlines on the quantum of the service tax paid by them till now and the value on which it is calculated. It has also sought information on the methods followed by airlines to sell tickets, besides the composition of the total value of the ticket. The tickets have components like basic fare, fuel surcharge and airport tax. The sources told ET that the revenue department is examining various issues with regard to service tax on air tickets and a clarification is likely to be issued soon. They said information had been sought from the airlines to ascertain data on various aspects of the airline travel and service tax implications. The method for calculation of service tax would be tightened despite protests from airlines, it is understood. Apart from individual airlines, the Board of Airlines Representatives (BAR) has been making efforts to fend off the bid to widen the incidence of service tax on premium air tickets. Travel agents, who handle most of the airline sales in the country, are also opposed to the tax and its implementation on a far stricter basis. Airlines have already conveyed their reservations on the tax to the revenue department. The move makes it difficult for Indian carriers to compete with foreign airlines, they have emphasised. In view of the complex nature of the airline industrys operation, the airline industry wants the tax to be scrapped. In case the tax cannot be withdrawn, they want implementation to be simpler. Tickets sold in a foreign country for travel within India should not be covered by the tax, Indian airlines have said. There is also the case of tickets being sold abroad for Indians to travel overseas. Companies employing Indians send paid ticket advice (PTA) to enable the hired employees to travel to the destination of their posting. In such cases, tickets are not sold in India even though they are issued here. As of now, service tax is levied on the basic fare while there is no service tax on fuel surcharge. The revenue department is also examining whether service tax should be on the total value of the ticket, officials said. Travel agents, who pay service tax on their commission, use the basic fare as the benchmark to work out the incidence of the levy. It has been pointed out by the department that the airlines have been raising the fuel surcharge and keeping basic fare constant.
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