India’s increasing sales taxes on air tickets is negatively affecting the country’s civil aviation industry, warn aviation experts.
“While taxes provide a tangible short-term revenue boost to the government coffers, increased taxes in the long term can be outweighed by the cost to the underlying economy,” aviation finance expert Charles Tyler says.
Despite campaigns that stated the tax contravenes International Civil Aviation Organization (ICAO) policies, the Indian Finance Ministry extended airline sales taxes to all classes of domestic and international airline tickets.
Previously, the sales tax was only levied on international premium class tickets. These taxes were capped, but the Indian Finance Ministry is seeking to remove these upper limits, thus increasing the taxes further.
“Germany, India and Austria are not claiming their taxes are environmental. They are simply a financial grab on behalf of the respective governments. But aviation has long been regarded as a soft target for environmentalists and, in the past, some of these aviation taxes have been “greenwashed,” Tyler quips.
He says that while business travelers may be able to write off additional or increased aviation taxes as costs associated with business, leisure travelers cannot. “It is this sector that is most likely to change its behavior based on increased taxes,” Tyler points out.
Jeff Poole,director of government and industry affairs, says the main problem is that in many cases finance ministries, which levy the taxes, do not look at the big picture.
“We are working closely with Oxford Economics to demonstrate the enormous benefits that aviation generates,” he says. “The only way we can get the message through to finance ministries is if we provide hard numbers showing that taxes may raise revenues, but will also impact on other areas of the economy.
“Taxing aviation produces short-term cash benefits, but destroys one of the most beneficial economic catalysts that an economy can have,” he continues. “It is slowly killing the goose that lays the golden egg.”
IATA Chief Economist Brian Pearce also points out that there is a mistaken belief in some circles that because there is generally no Value Added Tax (VAT) or sales tax on international ticket sales, and no excise duty on aviation fuel for international flights, the aviation industry is under taxed. “But aviation pays for its infrastructure,” counters Pearce.
“That must be compared to the huge government subsidies that are often handed out to road, rail and shipping. Aviation already pays its fair share.”