With airlines lobbying hard against the proposal to bring air travel under the service tax net in Budget 2010-11, the government may provide some relief to the sector hit badly by a global slowdown. The finance ministry is likely to specify a small fixed amount as the levy on all domestic and international tickets.

Official sources told that airlines will be given a choice — either to pay an absolute amount or 10 per cent of the base fare charged by them from customers. The absolute amount of service tax on international tickets will be higher than on domestic air tickets. The sources, however, said even if the service tax rate was 10 per cent, the effective rate could work out to be lower with the ministry planning to extend the benefit of abatement — reduction or exemption from taxes granted for a specified period — they clarified.

Representatives from the domestic industry have been meeting revenue department officials on the issue, seeking certainty and also making a case for a fixed amount as tax. Even international airlines, including British Airways, have requested for a moderate rate and a fixed amount. Sources said that airlines will be comfortable if the government decides on a fixed amount of less than Rs 300 for domestic flights and between Rs 300 and Rs 1,000 for international. “The finance ministry is considering the suggestion and the amount to be levied is likely to an absolute figure,” the sources said.

Currently, international airlines pay tax only on business and first class. Now, with the new proposal, they will have to pay tax on economy class tickets too. The industry has said the move will make air travel more expensive at a time when traffic is not showing clear signs of a pick up.

The industry has argued that the levy would impact the common people and their business since the tax would be invariably passed on to consumers. “So a fixed amount would lessen the burden and not impact the competition adversely,” the sources said.

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June 2021