Tax issues may force airlines to exit India: IATA DG

Dubai: Global airlines fear the complexities of India's tax system could drive them away from the world's third-largest aviation market, warned the International Air Transport Association (Iata). 

During a roundtable discussion on the sidelines of its 80th annual general meeting (AGM), Iata director general Willie Walsh highlighted concerns over potential withdrawal of international airlines due to tax intricacies, including double taxation risks.

“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 said.

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In October 2023, the Directorate General of GST Intelligence (DGGI) conducted extensive searches at the Indian offices of foreign airlines including Etihad, Emirates, Saudi Airlines, Qatar Airways, Air Arabia, Oman Air and Kuwait Airways, as part of an investigation into alleged tax evasion linked to services imported from the airlines' overseas headquarters to their Indian branches.

DGGI Summon

This year, DGGI summoned the Indian staff of Thai Airways, Singapore Airlines, Lufthansa and British Airways, among others, over allegations of non-payment of goods and services tax (GST). According to the agency, services like aircraft maintenance, rentals and crew salaries, overseen by an airline's overseas headquarters, are subject to GST in India.

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“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," Walsh, a former chief executive of British Airways, said.

"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.”

Dominating Air Traffic

According to 2022-23 data from Directorate General of Civil Aviation (DGCA), foreign carriers dominated international air traffic to and from India, with a 56% share, while Indian carriers accounted for 44%. Emirates led as the largest foreign airline in India's international market, with a 10% share, followed by Singapore Airlines, Etihad, Qatar Airways, Lufthansa and Air Arabia.

“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,” Walsh said.

Also read: Domestic air traffic up 4.7% in January

“So, India and taxes are always complex, we will wait and see what happens,” he added.

According to official data, international traffic to and from India for the October-December period stood at 17.3 million passengers. This demand was met by 78 foreign airlines and six domestic carriers.

(The reporter is in Dubai at the invitation of Iata).