GST hike to make premium air travel costlier; IATA expresses disappointment

GST on Premium Economy, Business, and First class air travel rises to 18%, while economy fares remain unchanged. IATA expresses disappointment, warning of negative effects on India's aviation sector

International Air Transport Association (IATA) has expressed disappointment after the GST Council raised the levy on premium economy, business, and first class tickets to 18 per cent from 12 per cent.

 

“In many ways, India has been an amazing aviation story with its impressive growth, record aircraft orders, and world class infrastructure. Aviation has tremendous potential to contribute to India's economic growth, both directly as Indian airlines grow, and indirectly through increased connectivity for travellers and businesses alike. It is therefore disappointing to hear of a decision to increase the GST on non-economy travel with no clear justification,” Sheldon Hee, regional vice-president, Asia Pacific, International Air Transport Association (IATA), said.

 

While air travel in the non-economy classes is set to get more expensive, the Council has kept economy fares unchanged at 5 per cent.

 

IATA is an industry body with 350 member airlines worldwide. Indian carriers like IndiGo, Air India and SpiceJet are also its members.

 

Hee stated that the increase runs counter to the efforts of Indian carriers, which have been investing in premium products to improve travel experience.

 

He pointed out that tax on non-economy air travel has risen sharply, with GST at 18 per cent, compared to the 8.6 per cent effective rate in 2017 under the service tax regime. Back then, the headline service tax was 15 per cent, but due to abatements, the effective incidence on premium fares worked out to around 8.6 per cent. With the GST Council’s latest move, travellers in non-economy classes will now pay more than double the pre-GST burden.

 

“For its aviation industry to thrive, India needs to take a whole of government approach in considering broader policy and consider the risks of such policies on dampening demand and undermining profitability. Asia Pacific airlines are forecast to only earn $2.60 per passenger in 2025. Taxing premium travellers, where these customers often make a difference to a route's viability, is counterproductive,” he said.

 

A senior executive at an Indian carrier also expressed unhappiness with the GST hike. He said Indian airlines have only recently begun ordering wide-body planes to expand international operations with multiple classes and compete with foreign carriers, which currently dominate India’s international market. The GST increase, he added, will raise ticket prices for non-economy classes and hurt this ambition.