Foreign airlines could potentially quit the Indian market due to tax policies in the country. But what does this mean and why did the IATA chief warn against this possibly happening in the future?
What Did The IATA Chief Say?
The director general of the International Air Transport Association (IATA) Willie Walsh talked about concerns regarding tax and tax intricacies in India and how that could make foreign airlines withdraw from the Indian market.
Speaking at the 80th annual general meeting (AGM) in early June in Dubai, Walsh said “Tax issues and India go hand in hand…we are very concerned that some of the proposals would actually lead to airlines withdrawing from the market because (they would be exposed to) the complexity of tax rules, the extent of taxes, and the risk of double taxation, which most air service agreements set out to avoid.”
Walsh, a former chief executive of British Airways, said, “I go back to my time as airline CEO. There has always been a debate about application of tax rules in India, which appear to be far more complex than anywhere in the world. These investigations will continue.”
“We argue very strongly that there is a global tax structure in place, which works and works well, and changing that tax structure does not necessarily represent an opportunity; some people believe that through this they will generate additional tax revenues which may not be the case because as a result of this, you could see is an exit from the market.”
Walsh also said “In areas where airlines have not been able to repatriate their money, they eventually say ‘I got to stop serving this market’. (Subsequently), normally they reduce their services, and then, if they are not being able to repatriate, and is it significantly impacts profitability, and if there is double taxation, the risk is a negative impact on the network it serves.”
He concluded with, “So, India and taxes are always complex, we will wait and see what happens.”
Repeating the same Walsh further explained to ET, “As a result of this, you could see these airlines withdrawing from the Indian market. How it happens is that airlines gradually reduce the number of flights because it impacts their profitability and then go for a total withdrawal.”
The IATA currently has 300 airlines as its members.
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Why Is This Being Brought Up?
The Directorate General of GST Intelligence (DGGI) sent out summons to the Indian offices of various foreign airlines in October of 2023.
The airlines under the radar were British Airways, Lufthansa, Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Emirates, Oman Airlines, Air Arabia and Saudia (formerly Saudi Arabia Airlines).
The DGGI also conducted searches at the Indian offices of these airlines under allegations of tax evasion, where services coming in from the airlines’ overseas headquarters to their Indian branches were being questioned.
The DGGI this year also sent notices to Thai Airways, Singapore Airlines, Lufthansa and British Airways, among others, alleging non-payment of the goods and services tax (GST).
According to reports, the DGGI, a law enforcement agency under the finance ministry against tax evasion, claims that services imported by parent organisations to local offices like aircraft maintenance, leasing and rental, crew salaries, staff cost, and aircraft fuel are subject to GST in India.
While British Airways, Singapore Airlines and others are complying with the DGGI and cooperating but did bring up the issue with the IATA and how they were not happy with it.
As per the IATA, the local branch offices in India don’t have any hand in crucial operations like contracting and maintenance of aircraft, crew, pilots, and more and instead are handled by the head offices of the airlines.
Thus the IATA said, “It is not legally accurate to attribute any strategic and operational risks and functions to the branch offices in India.”
In an Economic Times report, a senior airline official revealed that “when a foreign airline gets permission to operate to India, the Directorate General of Civil Aviation (DGCA) gives permission to the global headquarters and not to the local unit. So to hold it liable for services is a grey area of law.”
“We have petitioned the government to keep this abeyance,” he further said.
Something To Do With Air Traffic?
Some reports believe this could have something to do with the rising Indian aviation industry that is beginning to compete with foreign airlines. The 2022-23 data from DGCA revealed that “foreign carriers dominated international air traffic to and from India, with a 56% share, while Indian carriers accounted for 44%.”
Emirates is in the lead with a 10% share in India’s international market, along with Singapore Airlines, Etihad, Qatar Airways, Lufthansa and Air Arabia. But, Indian carriers like Indigo, Air India, Vistara, Air India Express and SpiceJet have managed to make considerable headway in gaining market share with just these five amounting to 45% of the international traffic to and from India.
This, as opposed to the 72 foreign carriers, has resulted in, according to a Financial Express report, “foreign airlines have been pushing for an upward revision in the bilateral air service rights.”
Image Credits: Google Images
Feature image designed by Saudamini Seth
Sources: The Economic Times, The Financial Express, Livemint
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This post is tagged under: Foreign Airlines, Foreign Airlines India, IATA, Directorate General of GST Intelligence, DGGI, British Airways, Lufthansa Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Saudi Arabia Airlines, Emirates, Wille Walsh
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