New Delhi: Airlines may have to absorb a 10% service tax on tickets booked before the finance ministry notifies the levy proposed in the 26 February Union Budget, analysts said.
The notification is expected sometime in May after the Budget is passed by Parliament and the carriers may not be able to charge passengers the amount on tickets bought before then for travel at a later date.
“Airlines will not be able to recover the service tax amount from the passengers prior to the levy being made effective. Ideally, the government should make service tax leviable only on tickets sold by airlines for travel from the effective date,” said Kapil Arora, partner, Ernst and Young. “This is what happened in the past when the tax was introduced on premium-class international air travel.”
Some service taxes such as those on rail freight have been notified already while levies such as those on air travel will come into affect only when the Bill is cleared, said a finance ministry official who asked not to be identified.
The carriers have until June to convince the finance ministry not to impose the tax and a delegation of airline executives is likely to make a presentation to finance secretary Ashok Chawla next month, said Anil Baijal, former joint secretary at the aviation ministry and now secretary general for lobby group Federation of Indian Airlines.
A top aviation ministry official who didn’t want to be named said second thoughts on the tax were unlikely as the government aims to narrow its deficit.
A senior official with a domestic airline who also asked not to be identified said the carriers are still confused on who will carry the burden if there is a lag between the date the levy becomes effective and the date of notification. The tax, when implemented, will be charged under a separate head on tickets, he said.
Airlines will be asked to pay the levy on such tickets because they will be providing the service to passengers, said Sujit Ghosh, partner at tax consulting firm BMR Advisors.
“They have no ability to recover the tax from the customer unless they issue a debit note at the airport,” Ghosh said. Still, “it is possible that government may provide an exemption for the interim period because they have done that in the past”.