India must address tax challenges faced by foreign carriers: IATA DG

Business Standard

2 days ago

India must address recent tax-related challenges faced by foreign airlines and provide greater clarity on how its tax laws are applied if it wants to unlock the full potential of its aviation sector, International Air Transport Association (IATA) Director General Willie Walsh said on Tuesday.
In August last year, the Directorate General of Goods and Services Tax Intelligence (DGGI) issued show-cause notices to 10 foreign airlines, including Emirates, British Airways, Lufthansa, Singapore Airlines and Qatar Airways, alleging unpaid Goods and Services Tax (GST) amounting to around Rs 10,000 crore.
The DGGI argued that services provided by the overseas headquarters of these carriers — such as aircraft maintenance, crew salaries and rentals — constitute taxable supplies to their Indian branches under the reverse charge mechanism. The investigation began in August 2023, with executives from the Indian arms of these airlines summoned in December and January to explain the nature of these transactions and their tax treatment.
'Taxation is always one of the items on the agenda when we talk about India, and especially for those of us who have operated here,' Walsh said on Tuesday at a press briefing during the IATA Annual General Meeting in Delhi.
'For good or for bad, India has a very complex tax system. It's been a feature of the aviation industry here for many years, so this isn't a new issue,' he noted.
He stressed that the problem is not necessarily the existence of taxation, but the unpredictability around how it is interpreted and enforced. 'For India to fully exploit the potential and to translate the vision into a reality, I think the issue of taxation does have to be addressed. Now, that's not to say that you have to eliminate taxation altogether, but there must be a clearer understanding of how the rules apply,' he added.
Walsh pointed out that what frustrates airlines is the lack of consistency in how long-standing tax rules are interpreted. 'What a lot of airlines believe happens is that you get a new interpretation of an existing rule that's completely different from how it was understood before,' he said.
'That leads to a claim for taxes that allegedly haven't been paid, triggering years of litigation and discussions. These cases often get resolved in favour of the airline, but not before they've endured significant costs and uncertainty in the meantime,' he stated.
Drawing from IATA's past engagements with Indian authorities, he said, 'I know from discussions we've had that nobody wants these drawn-out disputes. But going forward, if India is to genuinely exploit the massive opportunity that I believe exists here, greater certainty around tax raising will be important.'
Meanwhile, Walsh also flagged concerns over high airport charges in India, noting that this remains a perennial point of friction between airlines and airport operators. 'We'll always have issues about airport charges. It's the difference between airlines and airports. Many people think we are in the same industry. We're not. We happen to be in an aligned industry,' he said.
Explaining the core of this disconnect, he said, 'The airline industry and the airport industry probably have common ground on 80 per cent of issues, and then 20 per cent — the way I describe it — is violent disagreement, which typically relates to financing and financial issues.'
Walsh argued that airlines want airports to make long-term, sensible investments that are affordable for the industry. 'Many airports around the world — I'm not just picking on India — don't fully understand the needs of the airlines. What we often get is development that is not appropriate for the airlines or more expensive than necessary,' he said. He also noted that airports, in many cases, make significantly higher profit margins than airlines.