Aviation ind seeks service tax rollback on local, overseas travel

The aviation industry sought a rollback in the proposal to impose service tax on all classes of air travel in both domestic and international sectors, saying it would act as a "dampener" for the industry, which is yet to come out of the red.

Refusing to comment on the issue, Civil Aviation Minister Praful Patel welcomed the provision of Rs 1,200 crore for Air India in Budget 2010-11.

"It is on expected lines. The issue was discussed (by the Group of Ministers) in the past. The government has kept its commitment to capitalise the national carrier," he said.

Industry leaders, requesting anonymity, said the decision to impose ten per cent service tax was rather "steep" and urged the government to see how it could be rolled back or avoided.

They said the Indian aviation industry had just started showing signs of recovery after two years of a major setback, when it accounted for almost one-third of the global industry losses.

The move to impose service tax would "act as a dampener" for the sector, they added.

In the same vein, Paramount Chief M Thiagarajan said "the levy on crude import by 5 per cent and service tax on domestic travel will only increase airfares.

"He said no major announcements have been made in the Budget in terms of providing concessions to the civil aviation sector.

"The air fares have already gone up in the last three months and there is a threat of User Development Fees also. Morever, at a time when the industry is also not doing well, the decision to bring domestic travel in the ambit of service tax will be an extra burden on the passengers," Air Passengers Association India President D Sudhakar Reddy said.

"Service tax was applicable earlier only on international First and Business Class tickets. The Budget has increased the ambit to also cover both domestic and international air travel," Cox and Kings Executive Director Peter Kerkar said.

Kerkar said service tax that would be imposed on basic fare would be about 40 per cent of the total fare.

However, Bird Group Executive Director Ankur Bhatia said the Budget has kept the focus on infrastructure funding and social sector with "rational increase" in taxes.

With his group investing in the hotel industry, Bhatia said, "while the benefit on investment-linked tax exemption for 2-Star hotel and above is good and will boost the tourism sector, the need of the industry to be categorised as an infrastructure sector has gone unheard.

"He said the demand for treating the hotel industry as part of the infrastructure sector should be "urgently" heeded as there is a serious shortage of star category rooms across the country.