GST makes transport affordable but pinches the luxury traveler

Tax rate on transport sector lowered to 5% from 6%; biz class, AC travel, freight take rate hike hit

The new Goods and Services Tax will make your travel cheaper but if be prepared for a bigger hole in pocket if you are a luxury traveler.

True to its aim of making travel affordable the government did not increase the tax rate on the transport sector. Finance Minister Arun Jaitley on Friday announced that the rate of tax on the transport sector would be 5 per cent. This is lower than the prevailing rate of tax rate of six per cent while both passenger and sleeper class have been exempted from GST.

"Considering that transport is an essential part of the infrastructure, the GST council has decided to put rail, road and air travel in the lower bracket of five per cent," finance minister Arun Jaitley told after the end of the two day GST Council meeting at Srinagar

Another reason for keeping the taxation rate on transport services in the lower bracket is because unlike other sectors the players in transport sector will not get input credit on taxes. "Since the transport sector's main input is petroleum which has been kept out of GST ambit, hence they will not get any input credit on tax," Jaitley said.

However, the tax rate for business class was increased by three per cent and senior railway ministry officials said that GST will lead to an increase of 1.3 per cent from current 3.7 per cent in fare for air-conditioned class and freight services.

"By ensuring that the new rate structure is not inflationary, the government has demonstrated its pro-consumer, pro-business stance. GST will simplify the tax regime in the country and we are excited to see how its impact unfolds across different sectors of the economy," Amit Jain, President, Uber India & South Asia.

Experts termed it as a huge positive for the sector. S.P Singh, Senior Fellow Coordinator,Indian Foundation of Transport Research and Training said that the uniform five per cent serbice tax rate for goods transport under GST along with hefty benefit of Input Tax Credit to transporters, is most likely to bring down net transportation cost and consequently gross freight charges by 4 per cent- 10 per cent. Retail goods booking and delivery service providers at present levy Service Tax on gross freight charges displayed on Consignment Note at 4.75 per cent after due exemption of 75 per cent from present service tax rate of 15 per cent on transportation of goods by road.

"We are happy that for railways has been kept at the lowest slab, had it been higher it would have pinched the passenger more. We are looking at the overll impact," said a senior railway official.

For aviation sector, the new tax rate are a huge positive considering the industry was bracing up for higher tax rate. Though the tax rate for business class was increased to 12 per cent from current nine per cent, experts said that it will have no impact. " Most of the seats in domestic sector are in economy section, considering there has been reduction of 1 per cent I see it as a positive move for the industry," Peeyush Naidu said.

Low ticket prices has helped India to become the third largest market in the world in 2016 terms of domestic travel surpassing Japan according to aviation consultancy firm CAPA. India's domestic air passenger traffic stood at 100 million in 2016 and was behind only the US (719 million) and China (436 million). "The new tax rates will continue to support affordable fare regime in India. Expect high growth rate in domestic traffic to continue in the near term with further upside once the GST impact on the economy is visible in 1-2 years," Kapil Kaul CEO, South Asia of aviation consultancy form CAPA said.