The International Air Transport Association (IATA) has criticised the Goods and Services Tax (GST) Council’s decision to raise GST on non-economy class air tickets from 12 per cent to 18 per cent, calling the move “disappointing” and “without justification”, reports news agency PTI.

The GST Council, comprising representatives of the Centre and states, on Wednesday approved a two-rate structure of 5 per cent and 18 per cent as part of a wider revamp. The new rates will take effect from 22 September. GST on economy class tickets remains unchanged at 5 per cent.

IATA concerns

Sheldon Hee, Regional Vice President – Asia Pacific at IATA, said, “Tax on non-economy air travel has risen dramatically – GST is at 18 per cent after yesterday’s announcement, compared to the 8.6 per cent rate in 2017 under the service tax regime. Aviation has potential to contribute to India’s economic growth, both directly as Indian airlines grow, and indirectly through increased connectivity for travellers and businesses alike. It is therefore disappointing to hear of a decision to increase the GST on non-economy travel with no clear justification.”

He added that a “whole-of-government approach” was required to ensure the sector’s growth, cautioning that the policy risked dampening demand and undermining profitability.

“Asia Pacific airlines are forecast to only earn $2.60 per passenger in 2025. Taxing premium travellers, where these customers often make a difference to a route’s viability, is counterproductive,” Hee said.

Impact on market

India is the world’s third-largest aviation market, with passenger traffic projected by the government to double to 500 million by 2030.

Jitin Makkar, Senior Vice President and Group Head of Corporate Sector Ratings at rating agency ICRA, noted that the increase in GST on premium, business and first-class air travel would likely be passed on to consumers.

“However, this should not have a significant impact on the business class segment, considering this segment’s low price elasticity, though there could be some amount of downtrading to the economy segment,” he said.

No comments were available from domestic airlines.