India plans 2 per cent flight tax to fund regional air travel boost

New Delhi, October 30

India plans to impose a two per cent levy on most domestic and international airline tickets, the government said today, raising funds to improve regional air travel infrastructure as part of a long-awaited proposal to get more Indians flying.

Releasing the government’s draft aviation policy, civil aviation secretary RN Choubey said the tax may raise about INR 15 billion ($230 million). Funds will go towards reopening hundreds of disused airstrips, building ‘no-frills airports’ and providing finance to airlines to help keep prices on regional routes at INR 2,500 per hour of travel.

India is one of the world’s fastest-growing aviation markets, with around 70 million domestic tickets sold annually and passenger numbers rising 20 per cent a year. Choubey said raising regional air connectivity would see annual ticket sales jump to 300 million by 2022.

The government’s aviation policy draft follows a document released last year that the industry criticised for ignoring high operating costs that leave most airlines struggling to make money in India’s fiercely competitive market. Although many budget carriers frequently sell fares for less than $20, flying remains out of reach for the vast majority.

“Overall, this is a good first step,” Ajay Singh, the chairman and managing director of low-cost carrier SpiceJet Ltd, told Reuters, speaking by telephone. “Most of the growth in India is happening in tier 2 and tier 3 towns.”

But Singh said he wanted to see the government address taxes on aviation fuel and other operating costs, which went largely unmentioned in policy draft. The government will now seek feedback on the document from public in a three-week consultation period.

The government did say it wants to scrap service taxes and reduce excise duties on some aircraft maintenance and repair operations to keep more of the work in India. More than 80 per cent of the $1 billion industry of repairing and maintaining Indian aeroplanes is carried out overseas, where it currently is cheaper.

The government also said it would consider allowing foreign firms to buy more than 49 per cent of Indian airlines, provided New Delhi could agree to liberalise bilateral traffic rights with other countries.

Choubey said the ministry would take another two months to decide on whether to keep, revise or scrap a rule restricting newer airlines like Vistara and AirAsia India from flying overseas routes, a rule the airlines say unfairly penalises them.