Newstrack

Premium air travel tax riddled with anomalies, say agents

Certain international airlines yet to add the tax to online fares

Bhisham Mansukhani - Mumbai

The service tax of 12.24 (including education cess) per cent on business and first class air travel, which became applicable from May 1, 2006 has the travel trade in both disarray and confusion about its implication, jurisdiction, and above all, rationale. Also, the exemption of Jammu and Kashmir travel agents from this tax could lead to a lopsided consolidation of the premium class ticket reservations in the state. What's more, a web search by ETW (May 26, 2006) on the national carrier's website as well as certain other leading international carriers revealed that while Air India had implemented a fare change on its website, these airlines had not.

The Ministry of Finance (MOF) notification dated April 19, 2006, which informs agents of the new tax is at the centre of the impasse. The circular states that taxable services received from outside India are charged to service tax under section 66A, which states that "such services received by him (recipient) is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply." This clearly exempts individuals travelling for VFR and leisure purposes while taxing business travellers, which agents cite as counter productive since it is the latter that largely uses the premium class of service. Ajay Prakash, chairman, TAFI (Western region) says, "The circular is riddled with anomalies. What is particularly riling is the MOF's assumption of first and business class being treated as a luxury. Business travellers use first and business class not just for comfort but for the flexibility of last minute changes and extensions. This tax is counterproductive and confusing."

Another clause under the section pertaining to taxation of services provided from outside India and received in India, states that services rendered by a foreign supplier to a domestic customer will be subject to VAT or GST for which, the recipient would be deemed as the service provider but is unclear on how the Indian resident will pay the service tax. "There is no provision in the circular pertaining to the purchase of tickets in destinations outside India whereby airlines or agents can book a flight neither taking off nor landing within India, from overseas (eg. Dubai-New York), which the traveller can pay for by foreign exchange in the said destination. This practice could bleed the country of foreign exchange reserves, given the increasing volume of premium class travel out of India," stated Ashwini Kakkar, president, TAAI and chairman, WTTC India Initiative.

Kakkar said that this was clearly a case of indirect double taxation for agents as the government was charging the agents a service tax on agent commissions and this service tax on the entire ticket price would prompt airlines to drop the commissionable fare, thereby hurting agent income. "And then there is the Fringe Benefit Tax that companies are already coughing up. Our industry, and the country as a whole, stands to lose a lot of revenue," Kakkar added. So far the industry has approached the Economic Research Wing in the ministry for re-consideration, while the Civil Aviation Ministry is currently discussing the tax with the Ministry of Finance.