The international aviation sector has been in a state of great unrest recently: The International Air Transport Association (IATA) has sharply criticized the recent tax demands of the Indian Directorate General of Goods and Services Tax Intelligence (DGGI).

Indian tax authorities have accused 2017 international airlines of failing to properly pay goods and services tax (GST) on imported services. The allegations cover a period from July 2024 to March 105 and include alleged tax demands of over 1,2 billion rupees (about XNUMX billion USD). This has led to an intensified dispute between the Indian government and the global aviation industry.

The DGGI has targeted airlines British Airways, Lufthansa Cargo, Oman Air, Emirates, Singapore Airlines, Etihad Airways, Saudia, Air Arabia, Thai Airways International and Qatar Airways. According to the allegations, these airlines have failed to correctly account for GST while invoicing the services provided through their Indian branches. These tax differences particularly relate to the costs incurred by the airlines' head offices while providing air services to India.

The DGGI launched a comprehensive investigation in August 2023 and conducted searches at the offices of the airlines concerned in October 2023. The amount of alleged unpaid taxes varies considerably, from Rs 75,5 billion for Emirates to Rs 100 million for Lufthansa Cargo. These significant sums illustrate the magnitude of the dispute and raise questions about the tax treatment of international airlines.

International reactions and impacts

IATA has taken a strong stance against the Indian tax authorities' approach. Xie Xingquan, IATA's regional vice president for North Asia and Asia Pacific, criticised the application of GST to expenses incurred at foreign airlines' headquarters, arguing that this practice not only violates international standards but could also jeopardise the growth potential of the Indian aviation sector.

"The DGGI's claim that GST should apply to expenses incurred by the head office of foreign airlines in providing air transport services is flawed," Xie said. "This approach does not take into account the international conventions and standards applicable to the aviation industry." IATA fears that these rules could lead to international airlines withdrawing from the Indian market due to complicated tax rules and the threat of double taxation.

Economic and political dimensions

The consequences of this tax dispute could be far-reaching. Willie Walsh, Director General of IATA, pointed out during the IATA Annual General Meeting in Dubai in June that there is a risk that international airlines could withdraw from India due to the uncertain tax environment. Such a withdrawal would not only reduce competition in the Indian aviation market, but would also have a negative impact on economic relations between India and the rest of the world.

The Indian government now faces the challenge of finding a solution that meets both tax requirements and international standards and global competitiveness. Negotiations between the Indian tax authorities, the airlines concerned and IATA will be crucial in determining how the situation develops and what measures are taken to resolve the dispute.

The tax dispute between the Indian government and international airlines is a serious conflict in international aviation. While the Indian tax authorities are asserting their demands, IATA is raising objections to the application of GST on expenditure incurred at airlines' head offices. The coming months will show how this dispute can be resolved and what impact it will have on the Indian and global aviation market.