ATA says taxation issues pose hurdles for foreign airlines

Wille Walsh, the director general of the International Air Transport Association (IATA), responded to a query from ET, stating that, as a consequence, there might be a withdrawal of these airlines from the Indian market. He explained that this withdrawal typically occurs gradually, with airlines reducing the number of flights due to its impact on profitability, eventually leading to a complete withdrawal. He made these remarks while speaking on the sidelines of the Annual General Meeting of IATA in Dubai. According to Walsh, notices were issued for non-payment of tax on services such as maintenance, crew payments, and aircraft lease rentals, which are provided by the airlines to their Indian entity. IATA, in its communication with the Indian government, argued that these services' place was both the head office and branch office, suggesting that airlines should only be liable to pay taxes on services taxable in India, like payments for hotel accommodation used by Indian staff outside of India.

A senior airline official clarified that when a foreign airline obtains permission to operate in India, the Directorate General of Civil Aviation (DGCA) grants permission to the global headquarters, not the local unit. Therefore, holding the airline liable for services is a legal grey area. The official mentioned that they have requested that the government suspend this.

IATA further stated that airlines' branch offices in India do not engage in crucial operations such as contracting for aircraft leases, crew, pilots, fuel, and maintenance. All operations to and from India are decided, controlled, and operated by airlines' head offices. Thus, attributing strategic and operational risks and functions to the branch offices in India is legally inaccurate, according to IATA.

Walsh expressed optimism about opportunities in the Indian aviation sector but emphasised that the government needs to implement the right policies to unlock the country?s potential. He highlighted the example of the Chinese market, which constitutes 12% of global aviation, indicating the potential for growth in India, contingent upon the government's policy decisions.