Airlines Hope For A Delayed Take Off
Even as India’s civil aviation ministry claims that the airlines are fully prepared for the introduction of GST, the impression on the ground seems different. The players are in a quandary and seem ill-prepared to handle it. In fact, the industry still awaits a response from the government on their plea to defer the date till September.
For starters, the industry insiders complain of practical difficulties in changing the system overnight especially in a sector where the finance and accounting part is more or less fully outsourced to third-party agencies.
Raj Sivakumar, an aviation industry veteran and former chief commercial officer with Jet Airways says that in the aviation industry, any change in the ticketing and billing system, will have to be dealt in a very large and extensive booking network, which is not easy. “It is not the question of how big or small the tax variation in a new tax regime that matters as far as the airline is concerned, although a lower tax can have a positive impact on the business,” says Sivakumar. “The real concern for the players is about setting the system ready for a invoicing at the booking front and in the back end of finance and revenue,” he adds.
Under the new regime, the GST Council has lowered the tax rate for economy class flight tickets to 5 per cent from the existing 5.6 per cent, which is aimed at lowering the tax burden for common man and help growing air traffic. However, the business class tickets will attract a higher tax at 12 per cent from the current 8.4 per cent.
“The given tax reduction for economy class will not make much difference as the reduction is just 0.6 per cent, but just for this marginal change the industry needs to spend much more on a changed system,” points out another senior industry executive, who did not want to be identified.
Earlier in June, the airline industry, including national carrier Air India, had asked for postponement in the roll out of the GST on technical grounds. The industry has sought time till September. This was mainly due to practical difficulties and longer time required for making the required changes in booking invoices in an extensively vast distribution network. Most of India’s airline operators are dependent on globally spread computer reservation systems for ticket bookings. Most of these booking systems are hosted abroad and need to be changed in order to allow for new tax rates.
For instance, full-service airlines, including Jet Airways and Air India use a ticketing system for bookings that serves 700 to 800 airlines internationally. And these companies will take comparatively longer time to make changes in the booking systems. In fact, it won’t be an easy task even for the budget airlines such as GoAir, IndiGo, SpiceJet and AirAsia.
The Minister of State for Civil Aviation Jayant Sinha recently said that there is no question of GST being deferred as requested by the industry. He claimed that the aviation sector was completely prepared for the introduction of the GST as per the government’s schedule on 1 July. Clearly there seem to be a disconnect between the ministry and the onground specifics.
