The finance ministry established the DGGI as a law enforcement agency to combat tax evasion. The DGGI has stated that services imported from the parent entity by the local office, such as aircraft maintenance, leasing and rental, staff costs, and aircraft fuel, are subject to Goods and Services Tax (GST), which the airlines have purportedly failed to pay.
The Directorate General of GST Intelligence has been sending letters to international airlines about suspected tax fraud since last year. They are now threatening to get out of the Indian market. Why they are angry is explained by Swaraj Baggonkar.
What's the cause of their anxiety?
The Directorate General of GST Intelligence (DGGI) has been keeping an eye on foreign carriers since October 2023 due to suspected tax fraud on service imports. The finance ministry established the DGGI as a law enforcement agency to combat tax evasion. The DGGI has stated that services imported from the parent entity by the local office, such as aircraft maintenance, leasing and rental, staff costs, and aircraft fuel, are subject to Goods and Services Tax (GST), which the airlines have purportedly failed to pay.
British Airways, Lufthansa, Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Emirates, Oman Airlines, Air Arabia, and Saudia (previously Saudi Arabia Airlines) are among the airlines that have received summonses. Media sources state that the DGGI's Mumbai and Meerut zones conducted the investigations earlier this year. Airlines like Singapore Airlines, British Airways, and others have accepted the DGGI's move and are assisting the authorities. However, the International Air Transport Association (IATA), which represents almost 300 international airlines, has been informed of their dissatisfaction.
What is the IATA warning about?
FOREIGN AIRLINES ARGUE that their Indian branch offices are not involved in any critical activities, such leasing aircraft, hiring crew and pilots, obtaining fuel, or maintaining aircraft. IATA has issued a warning, stating that they could even be forced to leave the market due to the complexity of the nation's tax code. IATA director Willie Walsh voiced worries about double taxation and the complexity of Indian tax laws outside of the 80th annual general meeting.
"Our stance is that the current global tax structure is effective and efficient, and altering it won't always present a business opportunity. Some individuals might think that doing so will result in higher tax receipts, but that might not be the case since it might lead to a market withdrawal," Walsh stated.
The international organization has demanded that India implement the "right policies" in order to realize its full potential.
What percentage of international airlines fly in India?
India possesses a developing aviation industry, with its domestic air traffic now ranking third globally. The industry is booming, driven by low-cost airline IndiGo, with over a thousand aircraft orders pending with manufacturers. These are airplanes with both narrow and broad bodies. The latter are mostly used on foreign routes. Foreign airlines, seeing the potential of the Indian aviation sector, have been advocating for an increase in the bilateral air service rights. In the market for international aviation travel to and from India, foreign airlines have a 55% share. According to information released by the Directorate General of Civil Aviation until December 2023, Indian airlines Indigo, Air India, Vistara, Air India Express, and SpiceJet have succeeded in gaining market share in this area. Just five Indian airlines together carry 45% of all international traffic to and from India, compared to 72 foreign carriers.
Are they able to afford to leave India?
Any airline that reduces its flight schedule, whether completely or partially, runs the risk of losing customers to its competitors. In addition to having less market share, the competitor will also profit from lower pricing since it will have more control over that route and face less competition.
Contrary to popular belief, however, international airlines have merely expanded their network of links and flights to and from India.
The Hyderabad-Frankfurt route was been added to Lufthansa's roster, increasing its capacity by 14% above pre-Covid-19 levels. With the addition of a new daily route, British Airways will now operate 63 weekly flights between five destinations, including Delhi and London (Heathrow). Etihad is expanding its flight schedule from Thiruvananthapuram and launching new routes from Jaipur.
How do we proceed?
It is not legally correct to assign any operational and strategic risks to the Indian branch offices; IATA HAS SAID THAT ALL activities to and from India are determined, managed, and conducted by airline head offices.
Clarification on taxes is required since the import of services by the branch office from the main office presents a special challenge for the shipping and aviation industries. According to media sources, the GST Council has been tasked with handling this issue. According to tax specialists, it may not be feasible to ascertain the imported service's genuine worth.
The DGGI's conduct may not be well received in the world of international aviation. The Aviation Working Group downgraded India's compliance outlook to negative not too long ago.
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