The Directorate General of Goods and Services Tax Intelligence (DGGI) has recently taken action against 10 foreign airlines for allegedly evading taxes amounting to a staggering ₹10,000 crore. Among the implicated airlines are industry giants like British Airways, Lufthansa, Oman Air, Emirates, and Singapore Airlines.
The crux of the issue revolves around the non-payment of taxes on imported services by the Indian branches of these airlines. This controversy spans from July 2017 to March 2024, prompting a thorough investigation by the DGGI that commenced in August 2023.
According to officials, the notices sent to the airlines highlight the outstanding tax liabilities on services imported by their Indian branches from their respective head offices. Notably, these airlines are excluded from the provisions laid out in a circular dated June 26, which pertains to the valuation of imported services by related entities eligible for full input tax credit.
Despite attempts to seek clarity from the airlines regarding their exempt and non-exempt services, only four out of the 10 airlines have cooperated by providing the requested information. The remaining airlines have failed to offer any substantial explanations, raising suspicions further.
In response to the allegations, Lufthansa has been proactive in supporting the inquiries by furnishing the necessary data to the DGGI. The airline has expressed its commitment to closely monitor the situation and collaborate with the local authorities throughout the investigation process.
The issue has sparked a debate over the applicability of tax regulations to foreign airlines operating in India. While the airlines argue that they should only be liable for taxes on services taxable within the country, the DGGI contends that services provided from one legal entity to another are subject to GST, which the airlines have purportedly neglected to pay.
The matter escalated when the overseas headquarters of these airlines, responsible for services like aircraft maintenance and crew payments, were flagged for non-compliance with Indian tax laws. Despite efforts to seek clarification and engage with the finance ministry through diplomatic channels, the airlines remain embroiled in a complex regulatory quandary.
The involvement of the fitment committee under the GST Council and the subsequent issuance of the June 26 circular aimed at clarifying the valuation of imported services by related entities have not fully assuaged the concerns raised by the foreign airlines. Tax experts argue that the unique business models of airlines, involving a mix of taxable and exempt supplies, present challenges that may not be adequately addressed by existing regulatory frameworks.
As the investigations unfold and the debate over tax compliance intensifies, the future implications for foreign airlines operating in India remain uncertain. The outcome of this high-stakes standoff between tax authorities and aviation industry players will undoubtedly shape the landscape of international tax enforcement and compliance moving forward.
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