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Domestic air fares may rise as airlines claim GST raised cost of operations

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Indian airlines are seeking relief under the goods and services tax (GST) regime, which they say has added significantly to costs in an industry struggling with lower yields and could lead to higher fares.

“New levies under GST are set to cause a burden of Rs 4,750 crore for us, thus increasing our cost of operations, which has the potential to make the airline industry sick,” said a senior airline executive. “The new levies can potentially wipe off the profits earned by airlines.” India’s three listed carriers — IndiGo, Jet Airways and SpiceJetBSE -0.07 % — made a cumulative profit of Rs 2,479 crore in the year ended March.

Among the non-listed carriers, GoAir is the only profit-making airline, the others being Air India, Vistara and Air Asia India. Under GST, rolled out on July 1, taxes have been imposed on the reimport of aircraft engines and parts after service, which is set to cost the industry about Rs 2,000 crore extra per year. “There are no engine repair shops in India and we are forced to send aircraft engines for repair outside,” said the executive.

“A lot of engines of many airlines are also stuck with customs due to increased levies, impacting operations too at times.”

The other levies include the interstate transfer of aircraft parts for captive consumption and higher rates of up to 28% integrated goods and service tax (GST) on the import of aircraft parts, among others. “The government talks of making in India but these levies will only make Indian airlines globally uncompetitive, thus giving a huge advantage to competing foreign carriers, such as the Middle Eastern carriers,” said another executive.

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Aviation News India