Airfares set to rise on service tax levy

Air travel on all classes in both domestic and international sectors is likely to become costlier with the government expanding the scope of air transport services to attract service tax.

"The scope of air passenger transport service is being expanded to include domestic journeys and international journeys in any class," said the memorandum explaining the provisions of the 2010-11 Finance Bill, presented by Finance Minister Pranab Mukherjee in Parliament on Friday.

So far, service tax was imposed only on international travel on First and Business classes.

The government, however, has proposed to exclude from the taxable value the statutory taxes charged by foreign governments, it said, indicating airport taxes charged at foreign destinations.

The definition of 'airport services' was also being amended to include all services provided within the airport premises. An authorisation from the airport authority "would not be a pre-condition for taxing these services", it said.

The Finance Minister also announced that rate of tax on services will be retained at 10 per cent and added that certain services hitherto untaxed would be brought within the purview of service tax levy. These services will be notified separately, he added.

On the brighter side, the budget made a provision of Rs 1,200 crore equity infusion for Air India in the next fiscal as part of its financial restructuring process.

The ailing carrier will soon receive Rs 800 crore as the first tranche of equity infusion, which was cleared by the Cabinet recently.

The entire outlay of the Civil Aviation Ministry totals Rs 9,588.30 crore, of which budgetary support is Rs 2,000 crore.

The state-run Airports Authority of India has been provided with a budgetary support of Rs 600.5 crore out of which Rs 120.5 crore has been earmarked for development of airports in North-Eastern States.

The remaining Rs 480 crore is meant for development of airports in other crucial areas like Leh, Ajmer, Agatti, Port Blair, Tirupati and Puducherry, besides the satellite-based navigation project called GAGAN or GPS Aided Geo Augmented Navigation system.

A provision of Rs 40 crore has been made for development of a helipad at Rohini in Delhi to come up before the Commonwealth Games and for a helicopter training institute and heliport in Pune by the Pawan Hans Helicopters Limited.