Full service airline Vistara has a peculiar problem — its premium economy seats on domestic flights, the seats do not specifically fall under any Goods and Services Tax (GST) slab and is treated as a business class seat for taxation purpose.
Concerned with the high tax rate, the airline requested the Centre to apply economy class tax slab on premium economy class to make ticket prices attractive for customers.
“Premium economy falls under the business class tax rate as of now,” Phee Teik Yeoh, chief executive officer, Vistara told The Hindu.
“Though it’s debatable, we have written to the government and will continue to convince them that this is not premium class but more like an economy class seat with additional services,” he said.
Under GST, economy class fares became cheaper as the tax rates were slashed to 5% from 6% previously. However, ticket prices for business class travellers rose as the tax increased from 9% to 12% under GST. Vistara’s premium economy class ticket also attracts 12% tax under GST, impacting the airfares of the unique seat configuration offered on domestic routes.
“Airlines in the USA are coming up with this configuration. It’s no different than SpiceJet’s SpiceMax except that we offer more services,” Mr. Yeoh said.
More services
Vistara offers premium economy tickets priced higher than economy but lower than business class. and provides services such as extra baggage allowance and more meal options. Vistara’s full-service competitors Air India and Jet Airways have two-class cabin configuration — business and economy.
As chairman of CII’s Civil Aviation Committee, Mr. Yeoh has asked the government to exempt integrated goods and services tax (IGST) on aircraft spares imported after servicing and input tax credit to be available on economy class seats.
On economy class travel, input tax credit can only be claimed on input services and not on procurement of goods, import of aircraft and spares whereas on premium travel, full input tax credits can be reclaimed on both input goods and services, under the present GST regime.