The Civil Aviation Ministry is learnt to have strongly opposed the budget proposal imposing a four-fold hike in service tax on air travel, terming it a retrograde step that would hit fliers and airlines very hard.

Ahead of the passage of the Finance Bill in Parliament, Civil Aviation Minister Ajit Singh is understood to have shot off a letter to the Finance Ministry protesting the proposal on the grounds that the move would not only hit passengers but spell more trouble for the airlines which were already reeling under severe financial stress.

Singh is believed to have said that the proposal to raise service tax from 10% to 40% of the gross ticket value would hit air travel by making it costlier.
Under the budget proposal, the service tax was being made ad valorem implying that the tax would go up as the gross ticket price rises. At present, the tax has a cap of Rs 100 per journey for domestic sector in any class and Rs 500 for international.

The Minister is believed to have said the move was also "a perceived departure" from the current specific rate of taxation to ad valorem, terming it as "a retrograde step".

This, he said, was being done especially when his Ministry was advocating specific duty rate for Value Added Tax on jet fuel instead of the varied rates of sales tax imposed by different state governments.

Observing that taxation on the air transport sector was "already disproportionately high", he said if service tax in the present rate was implemented, it would "retard" the development of the airline industry.

"High tax regime on aviation will reduce the wider economic benefits available from aviation, resulting in a negative impact on economic growth and overall government's revenue basis", the Minister said.

He also said the service tax, along with the education cess on all airport and aviation services, would add to the already high tax burden on the sector.