Under the new indirect tax regime, leasing of goods is
regarded as a service and attracts the goods and services tax (GST). This has
created complexities for airlines, cab aggregators and cab leasing companies,
even as they grapple with teething issues of implementation of the GST.
Among the many issues faced by airlines, the anomaly in
terms of input tax credit for economy class and dual taxation on aircraft
leasing top the list. According to the rules, while input credit arising from
procurement of both goods and services can be used in case of business class,
input credit from services alone can be used for off-setting tax liability with
respect to economy class travel.
"Similar to business class, full input tax credit
should be given to economy class ticketing too," said a senior airline
executive.
The airlines have also raised the issue of dual taxation on
aircraft leasing. Under the new norms, aircraft leasing will attract a dual
levy — once at the time of import as Customs duty and again when lease rentals
are paid as GST on services.
Under the previous taxation system, cross-border aircraft
leases by scheduled airlines were not subject to Customs duty, central excise
and value-added tax (VAT).
"We have sought continuation of the tax exemption. The
impact is largely related to cash flows, as we will be able to claim an input
credit against tax liability on sale of tickets and cargo space," said a
senior executive from Air India.
Air India pays a lease rent of around $350,000 for its
narrow-body Airbus aircraft and around $1 million for its wide-body Boeing 787
aircraft.
Among domestic airlines, IndiGo has the largest capacity
induction plan. IndiGo, which ended FY17 with 131 aircraft, plans to induct 39
more in FY18.
Other airlines, including AirAsia, GoAir, Spicejet and
Vistara, also have inductions lined up this year. Air Asia India Chief
Executive Officer Amar Abrol said an airline's leasing cost may increase by Rs
12 crore per aircraft due to this.
Officials in aviation ministry said they were awaiting
clarification on these issues from the Ministry of Finance. The ministry has
also opened a GST clarification centre, where the airlines can clarify their
doubts about the new tax regime.
Cab aggregators such as Ola and Uber, as well as its
drivers, are facing almost double the taxes on leasing under the GST.
Industry experts expect lease rentals to increase 18-19 per
cent. According to Orix India, a leasing finance company for wholly-owned
subsidiary of Orix Japan, as the tax on services will increase from 15 per cent
to 18 per cent, there will be a direct increase in cost for the businesses that
give transportation facility to their employees or rented cars to their
management, etc.
The cost of cars which were leased during pre-GST and
equated monthly instalments (EMIs) being paid after GST will become more
expensive. "The cost of EMIs on such cars will go up as much as up to 30
per cent. It is expected that a consumer who was paying an EMI of Rs 30,000
before GST was implemented, will now have to pay Rs 45,000 on the same
car," the firm said.
Striking a low note, Orix India said that it expected its Rs
75-crore leasing business to go down to Rs 15-20 crore after the GST implementation.
They anticipate the chances of default on payments are set to rise.
App-based cab aggregators such as Uber hope that dialogue on
the issue with the authorities might help them get a resolution. "There
are still some open discussions on GST on leasing, there are some conversations
that are happening, not just us, others are also doing the same," said
Amit Jain, president, Uber India.
Experts said that the overall sentiment in leasing industry
is very low because of the GST and on provisions for double taxations.
Automakers, however, believe that even after higher taxes
leasing business would flourish. "A new business model of leasing may
emerge. Leasing industry will continue to grow, though the pace may vary,"
said Rakesh Srivastava, director (sales & marketing) at Hyundai.
Troubled routes
• Overall
sentiment in leasing industry is low because of the GST
• Anomaly
in terms of input tax credit for the economy class and dual taxation on
aircraft leasing top the list of challenges faced by airlines after the GST
roll-out
• Under the
new norms, aircraft leasing will attract a dual levy
• Under the
previous taxation system, cross-border aircraft leases by scheduled airlines
were not subject to Customs duty, central excise and VAT
• Cab
aggregators such as Ola and Uber, are facing almost double the taxes on leasing
under the GST
• Industry
experts expect lease rentals to increase 18-19 per cent
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