News / IATA fights back as India hits major foreign airlines with tax evasion allegations

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Foreign airlines operating out of India are in the crosshairs of its regulatory authorities over alleged evasion of indirect federal taxes, raising industry eyebrows.

According to sources, most top carriers – anecdotally as many as 10 or more – have been asked to show why they had failed to comply with India’s national Goods and Services Tax (GST) rules that came into effect in July 2017.  Sources put the combined tax demand at some $1.2bn.

Airlines facing this tax heat include Emirates, Singapore Airlines, British Airways, Lufthansa and Oman Air, sources said.

Sensing the implications, the International Air Transport Association (IATA) promptly pushed back, claiming the perceived tax applicability is in conflict with international conventions or business practices, and should be reconsidered.

IATA noted the action could undermine India’s promising aviation potential.

Xie Xingquan, IATA’s regional VP for North Asia and Asia Pacific, said: “The directorate general of GST Intelligence assertion that GST should apply to expenses incurred by the headquarters of foreign airlines (with a branch office in India) in the course of providing air transport services is flawed.

“It does not take into consideration the nature and conventions involved in the provision of international air transport.”

Mr Xingquan also stressed that Indian carriers operating to/from international destinations were not exposed to the vagaries of tax laws.

“The international nature of air transport necessitates a clear and consistent policy framework globally,” he added.

Other industry voices echoed IATA’s concerns. Amar More, CEO of Mumbai-based Kale Logistics Solutions, told The Loadstar: “The DGGI’s position that GST should apply to these expenses adds another layer of complexity to an already intricate taxation landscape.

“There is an urgent need for a robust technology-driven solution that ensures compliance, mitigates the risks of double taxation and simplifies tax rule complexities.”

India’s aviation sector is on the cusp of large-scale capacity expansion, due to growing demand, with foreign airlines enhancing network reach and domestic carriers consolidating fleets with orders for new aircraft.

Global aircraft manufacturers have also begun positioning themselves in the Indian market to offer spare parts and repair services. Boeing recently opened a large distribution centre in northern India in partnership with German logistics leader DB Schenker.

Meanwhile, international cargo volumes handled at Indian ports last month hit 182,000 tonnes, up from 162,000, year on year, according to new industry data.

And leading foreign container shipping lines have also found themselves on the firing line of Indian tax regulators over large “unmet” GST obligations.

Maersk, MSC, OOCL, Hapag-Lloyd and a few others were said to have received similar ‘show cause’ notices, forcing some of them to pursue litigation proceedings for relief.

According to available information, Maersk was slapped with a tax penalty of some $450m, .

India is an emerging economy with strong growth potential, and the GST implementation was an attempt to remove the cascading effects of multiple taxes on supply chains. But the reforms are also causing pain points for multinational logistics service providers as they step up their investment and network profiles in the country.