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Service tax may deter overseas travel in luxury class

Written by: Staff
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New Delhi, Mar 05: Imposition of 12 per cent service tax on international business and first class air travel is likely to see many executive class passengers opt for the economy category especially in short-haul sectors.

Business and first class international fares are generally three to five times higher than economy fares. With airlines in no mood to absorb the tax, it will further widen the fare difference business and economy class travellers.

A week after the Budget 2006-07, it is still unclear whether the tax will be imposed on full list fares or discounted ones that airlines offer to corporate travellers.

Industry experts say this may even force airlines to change the seat-mix between business and economy seats in international flights. A third of all seats in a flight are allocated to business and first class categories.

The government has clarified that it is airlines' liability to pay service tax and it does not pertain to transit passengers. While the burden will be borne by a passenger, airlines have to collect the levy, account for it and pass it on to the govern''We anticipate that many business passengers may now opt for economy seats, more so for short-haul travel from the country -- especially within Southeast Asia and Middle East regions,'' said Mr B K Ong, general manager Singapore Airlines' Indian operations. A spokesperson for Indian (earlier known as Indian Airlines) said the tax impact will be studied in detail. The airline does not wish to adjust its fares to absorb the tax cost.

An Air-India official said some passengers may now opt for economy class travel as the cost of first class and business class travel will rise significantly. Still, the flagship carrier does not plan any fare adjustments at this juncture.

Air-India, Indian and Jet Airways are the only Indian carriers flying abroad. Air Sahara, which has operations to Kuala Lumpur, Singapore, London, Colombo and Kathmandu, has been taken over by Jet Airways.

Several travel industry experts say that many corporate clients are already taking a relook at their international business class travel plans after the tax imposition.

''In case of long haul travel like that between India and the United States or London, there may not be much change in travel preferences,'' said one.

''We anticipate that many business passengers may now opt for economy seats, more so for short-haul travel from the country -- especially within Southeast Asia and Middle East regions,'' said Mr B K Ong, general manager Singapore Airlines' Indian operations. A spokesperson for Indian (earlier known as Indian Airlines) said the tax impact will be studied in detail. The airline does not wish to adjust its fares to absorb the tax cost.

An Air-India official said some passengers may now opt for economy class travel as the cost of first class and business class travel will rise significantly. Still, the flagship carrier does not plan any fare adjustments at this juncture.

Air-India, Indian and Jet Airways are the only Indian carriers flying abroad. Air Sahara, which has operations to Kuala Lumpur, Singapore, London, Colombo and Kathmandu, has been taken over by Jet Airways.

Several travel industry experts say that many corporate clients are already taking a relook at their international business class travel plans after the tax imposition.

''In case of long haul travel like that between India and the United States or London, there may not be much change in travel preferences,'' said one.

UNI

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