The Economic Times has published a report, suggesting India’s aviation industry may have to bear an additional tax burden of up to Rs 15,000 crore annually once the Goods and Services Tax (GST) Regime kicks in India on the basis of a memorandum filed by the Civil Aviation Industry Association. The report also states that at present the aviation industry pays around Rs. 3600 crores in Service Tax on a revenue base of around Rs. 60,000 crores.
There is a fallacy in the computation (by the ET report) of incremental tax liability under the GST regime. The ET report has added both Output Tax collected on Aviation Services and Input Tax paid on Supplies received by the Aviation industry. Whereas the factual situation is that in the GST regime, tax paid on inputs will be eligible for credit and deducted from tax collected on output and only the net amount will be payable by the entity (Airline, in this case).
Even if it is assumed that under Reverse Charge Mechanism, the burden of GST on Import of goods and services by way of Aircraft Purchase and Lease Rentals falls on the Civil Aviation Industry, the maximum incremental tax liability will be Rs. 7000 crores. This is less than 50% of the Rs. 15,000 crores incremental burden suggested by the ET report.
GST on Stock Transfer is an internal adjustment of GST liability within the entity at the branch level not creating an liability except to the extent of blocking of working capital funds. The supplying branch will collect GST from the receiving branch and the receiving braach will get Input Tax credit for the GST paid on the stock transfer received.
Accounting and Reporting for multiple tax jurisdictions within a single country and the accompanying paper work is an issue faced by every industry & trade and not specific to the Civil Aviation Industry.
The concerns raised by the ET report citing Aviation Industry Association are erroneous and the civil aviation industry does not merit any special treatment on these considerations alone.
Proper Computation of GST burden on Civil Aviation Industry
|Output / Demand Side||Amount (Rs.)|
|Incremental GST on Revenue – Passenger & Cargo||7000 cr|
|Total (Output) (A)||7000 cr|
|Input / Supply Side (Eligible for Credit)|
|Incremental GST on Aircraft Purchase||4000 cr|
|Incremental GST on Aircraft Lease Rentals||2000 cr|
|Total (Input) (B)||6000 cr|
|Net Incremental Liability (C) = (A)-(B)||1000 cr|
|Stock Transfer – Internal Tax Adjustment between Branches – No liability at Entity level||2000 cr|
(Source : All figures as per ET report dated 20 December 2016 (supra))