Business, first class fliers to pay service tax on fuel surcharge

Business, first class fliers to pay service tax on fuel surcharge

Business and first class travel on international flights out of India will cost Rs800 to Rs1,200 more from Tuesday for a round trip.

This follows a circular issued by the finance ministriy to airlines operating international flights out of India to levy 12.36% service tax on the fuel surcharge they impose on every business class and first class ticket.

The circular does not say anything about levying service tax on fuel surcharge on economy class tickets.

The fuel surcharge, which passes on the burden of any increase in the price of aviation turbine fuel, or ATF, on to the passenger, was previously not under the ambit of service tax. However, basic fares already come under the ambit of service tax.

With companies usually passing on service tax to the user, a Mumbai-London-Mumbai trip on business class on British Airways or Jet Airways will cost Rs800 more as the fuel surcharge is around Rs6,000. And a business-class passenger on the Mumbai-New York-Mumbai sector will have to shell out an additional Rs1,200 as the fuel cess on such tickets is around Rs10,000.

International airlines have already started sending instructions to travel agents on the increased fares.

A senior Air India executive, who did not want to be named, confirmed thedevelopment.

“Since the ministry has come down to fuel surcharge for imposing service tax, one would not be surprised if they extend the same in domestic travel as well," said the representative of an international airline who did not wish to be identified. He added that the airlines had no problems with following the ministry’s instructions because the business and first classes were growing by just around 10% in terms of traffic. The representative said that the airlines would protest any move to introduce such a tax on economy class tickets.

The representative of another airline who, too, did not wish to be identified said that economy class traffic is growing by 15%.

“Passengers travelling in the business and first class are not cost sensitive like economy class (passengers). An increase of Rs800 on the India-UK route, or Rs1,200, on the India-US route will not make them unhappy," said K.G. Vishwanath, senior general manager (MIS & investors relations) of Jet Airways, which operates international flights to the US and the UK.

“With this, the finance ministry has clarified that all sorts of surcharges are taxable. Without increasing basic fares, airlines were imposing fuel surcharges to skip commission to travel agents," said Ajay Prakash, general secretary of the Travel Agents’ Federation of India, or TAFI.

Airlines pay commission to travel agents on the basic fare while surcharges on increased jet fuel prices are not part of the amount on which the commission is paid.

“Now, we have a strong point to establish that all surcharges should be the part of basic fares," Prakash said.