Travel agents, airlines spar over service tax

Travel agents across the country are up in arms against international airlines' decision not to pay them a commission on fuel surcharge even after its inclusion in the services tax ambit recently.

Agents say that with the Government imposing a tax on fuel surcharge, it should now become part of the basic fare on which they get their commission (of around 5 per cent). However airlines are keeping it out of the ambit of the basic fare.

"According to ICAO rules, these surcharges should be part of the basic fare since they are part of the operational costs. However, in the ticket, airlines are disguising the surcharge as an amount paid to the government while it is levied to cover their own operational costs," said P Sampath Kumar, chairman, legal and industry affairs, Travel Agents Federation of India (TAFI). Including these surcharges in the basic fare would mean that the taxes and commissions would increase

Surcharges levied on fuel, security, congestion, etc are always included under the "taxes/charges/fees imposed by government authorities" category in a ticket even though revenues earned from these surcharges always go into the airlines' account.

As a result while the basic fare remains low, the increase in total fare comes from various surcharge heads.

To correct this, there were recent directions from the finance minstry to international airlines this September asking them to pay a service tax on fuel surcharge in their first- and business-class tickets.

According to ministry officials, this was just the first step and other surcharges would soon be covered under the service tax as well

For instance, a jet international ticket in the Mumbai-New York-Mumbai sector which has a basic fare of Rs 25,000 entails a fuel cess of Rs 10,000. Travel agents usually get a commission of 5 per cent per ticket on domestic and international flights.

Inclusion of fuel surcharge in the basic fare would give a commission of Rs 1750 to the agent instead of Rs 1250 on a Jet Mumbai-New York ticket.

At this rate even if an travel agency sells 100 such tickets in year, it would earn Rs 50,000 extra a year only one for one airline's operations in one sector.

Officials of both Jet and Air India confirmed that even though the service tax on fuel surcharges have begun to be implemented, it has not been included in the basic fare, "The fuel surcharge is subject to much fluctuation and thus can be put under the basic fare. That will mean that our fares fluctuate every month" said an airline official.