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Aircraft Seized In Indian Service Tax Row

by Mary Swire, Tax-News,com, Hong Kong

13 December 2012

India's Service Tax Department has impounded two Kingfisher airplanes in a row over the airline's non-payment of a INR630m (USD11.6m) tax bill.

Mumbai Service Tax Commissioner S.K. Solanki confirmed that the carrier had "failed to clear our dues." It is believed that the aircraft were seized between December 8 and 10.

According to the embattled airline, however, Kingfisher is merely a lessee of the impounded aircraft. This could lead to further complications over Kingfisher's right to claim damages and compensation from the Service Tax Department.

Kingfisher airlines has been effectively grounded since October due to an ongoing dispute between the company and its pilots and mechanics over the non-payment of wages, and its licence to operate has been revoked by the government.

In June 2012, India's Civil Aviation Ministry announced plans to significantly reduce taxation on the nation's ailing aviation industry to support its sustainability, amid the accumulation of massive debts by operators.

Presently, regional authorities levy Aviation Turbine Fuel (ATF) tax on airlines at an average rate of 25%, with the burden reaching as high as 30% in some states. Under the proposal, ATF tax would be limited to 4%, significantly cutting airlines' operating costs, of which almost half are fuel-related.

Meanwhile, service tax applicable on fares would be revoked to provide a further boost to the industry. Presently India levies a 10.3% service tax on international economy fares, or a flat INR773 (USD14) charge, whichever is lower.

The contribution of aviation to the nation's gross domestic product (GDP) is meager and far below its potential, at just 0.5% of GDP. If introduced, the significantly reduced tax burden would go a long way to assisting Indian operators, some teetering on the brink of bankruptcy, to establish profitable operations, and work with the government to grow the sector.

TAGS: compliance | tax | tax compliance | India | law | aviation | tax authority

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