How GST is Affecting the Cost of Airline Tickets: Insights and Analysis

The implementation of Goods and Services Tax (GST) in India has had far-reaching consequences across sectors, affecting consumers and businesses alike. One sector that has seen a significant impact is aviation, with the cost of airline tickets being a prime concern. In this article, we take a deep dive into how GST is affecting the cost of airline tickets and what insights and analysis we can glean from this.

Understanding GST in the Aviation Industry

The aviation sector in India is a heavily regulated and taxed industry. Prior to GST, the airline industry paid multiple taxes such as excise duty, service tax, and value-added tax (VAT) on various input services. These taxes, along with fuel and airport charges, were blended into the final ticket price, making it difficult for consumers to understand the different components that made up the price of their ticket.

With the implementation of GST, these multiple taxes were replaced by a single tax, resulting in a simplified tax structure. The GST rate on economy class airline tickets was fixed at 5%, while business class tickets were taxed at 12%. However, the applicability of GST depends on whether the airline is operating under the reverse charge mechanism or the forward charge mechanism.

Impact of GST on Airline Ticket Prices

The GST rate structure was expected to lower the cost of airline tickets, but that has not been the case for all. While the tax rate on economy class tickets was reduced from the earlier 6%, the tax rate on business class tickets went up from the earlier 9%. This has led to an increase in business class fares.

Moreover, the impact of GST on the final ticket price has been influenced by several factors such as the distance of the flight, the ticket price, and the origin and destination cities. For instance, flights that are less than 1,000 km in distance saw a hike in prices after GST. On the other hand, ticket prices for flights that are longer than 1,000 km have either remained unchanged or has gone down marginally.

Understanding the Reverse Charge Mechanism

The application of GST on the aviation sector has been complex due to the inter-state nature of airline operations. Under the reverse charge mechanism (RCM), businesses have to pay the tax on behalf of their suppliers. In the airline industry, this translates to airlines paying GST on services such as rent, ground handling, and maintenance provided by their suppliers such as airports and maintenance agencies. This has led to an increase in operational costs for airlines, which has been passed on to consumers in the form of higher ticket prices.

Conclusion

In conclusion, the implementation of GST has had a mixed impact on the cost of airline tickets. While the objective of simplifying the tax structure has been achieved, the application of GST under the RCM has resulted in higher operational costs for airlines. As a result, consumers have been hit with higher ticket prices, particularly for business class travel. However, the impact of GST on ticket prices varies depending on several factors, and consumers need to be aware of these to make informed decisions while booking their travel.