Kotak Sec, AVIATION -BUDGET HIGHLIGHTS & IMPACT

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AVIATION
BUDGET HIGHLIGHTS & IMPACT
n Budget remains silent on tax rationalization of ATF
Impact: As expected, the budget did not touch upon the topic related to
lowering of taxes on ATF. Aviation companies have been demanding for long
to bring ATF under the declared goods status (where sales tax is charged at
4-5%) as against the current sales tax of more than 20%. Given high crude
oil prices, ATF prices have been constantly on a rise over the past few months
which is a major negative for all the players in the aviation sector.

n Increase in service tax on journey
Impact: Following changes were announced in the service tax and will come
into effect from 1st April 2011-
l Service tax increased from Rs100 to Rs150 for journey made in the economy
class on the domestic route. We expect the players to pass on the increase
and do not see any major impact on the passenger traffic because the
increase is nominal.
l Service tax increased from Rs500 to Rs750 for journey made in the economy
class on international routes. Competition from international carriers primarily
on the shorter routes will make it difficult for the Indian players to pass
this to the customers. This will have a negative impact on the players in
the sector.
l Service tax increased to 10% for journeys made in higher class (other than
economy class) on the domestic route (in line with journeys in higher class
on international air travel). We expect this will be passed on to the passengers
but could impact traffic in higher classes to a certain extent and accordingly
is negative for the sector.