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Domestic air traffic declines 5% in January

Over the past two months several Indian carriers announced mega ticket sales at discounted prices and it is yet to be seen whether such promotional ticket schemes would spur any growth in air traffic

While global air passenger demand rose 2.7% in January year-on-year, Indian domestic air traffic fell by about 5% in the same month.

 

India’s domestic market was in negative territory with a 4.9% decline in demand and 5.3% capacity reduction. Load factors stood at 75.9%, according to latest statistics of IATA (International Air Transport Association), a body representing 240 airlines that handle about 84% of global air traffic.

 

The airline body pointed out that one of the major domestic players has effectively exited the market (read Kingfisher Airlines), weak economic growth, rising infrastructure costs and the impact of high fuel prices (being exaggerated by excessive taxation) were the factors affecting air traffic in the country.

 

However, over the past two months several carriers in India announced mega ticket sales at discounted prices and it is yet to be seen, whether such promotional ticket schemes would spur any growth in air traffic.

 

In January, international air travel globally expanded by 1.1%, marginally behind a capacity expansion of 1.4%. Load factors were 76.4% in the month, but after seasonal adjustment, the load factor reached a record high, exceeding 80%. China was the second largest market for domestic air travel.

 

But, overall global air travel demand was up 2.7% on the previous January, slightly ahead of the 2.2% expansion in capacity.

 

“Passenger travel is growing in line with business confidence levels. Recent months have seen some positive economic signs emerge in both US and China, and the Eurozone crisis seems to have stabilised. Of course, risks remain and the impact of the US budget cuts has yet to play out and fuel prices are high. But even with those headwinds we see underlying support for growth,” Tony Tyler, director general and CEO, IATA said.

 

In international air traffic, Asia-Pacific airlines captured over half of the growth in demand between October 2012 and January 2013. Middle East airlines posted the strongest growth rate of 14.3% in demand with about 79% load capacity, well above the global average, while Latin American airlines posted the second highest growth in demand at 12.2%. North American carriers saw a marginal expansion of 1.5% in demand, but had the highest load factor of 79.4%, while European airlines were among the weaker performers.

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Mauritius to take steps to avoid misuse of tax avoidance treaty

The announcement made by India’s finance minister in his Budget speech on making the TRC “a necessary but not sufficient” condition to avail of the benefits under double taxation avoidance agreements “has created much confusion among investors in India and internationally, including those using Mauritius to do business with India

The Mauritius government, on Tuesday, promised to address India’s concerns over possible misuse of tax avoidance treaty between the two countries, while ensuring its commercial viability on mutually acceptable terms.

 

“We wish to reiterate that Mauritius is committed and willing to collaborate fully to address the concerns of the Indian side on the DTAC (Double Taxation Avoidance Convention), while ensuring that the treaty remains commercially viable,” Mauritius’ ministry of finance and economic development said.

 

“We are optimistic that both sides can conclude a mutually acceptable package that would yield a win-win solution,” the ministry said in a statement, while welcoming finance minister P Chidambaram’s statement clarifying the recent concerns over Tax Residency Certificate (TRC) issue.

 

It said that an announcement made by Chidambaram in his Union Budget presentation on making the TRC “a necessary but not sufficient” condition to avail of the benefits under double taxation avoidance agreements “has created much confusion among investors in India and internationally, including those using Mauritius to do business with India.”

 

“The (proposed) amendment has been interpreted as providing wide powers to the Indian tax authorities to question the Tax Residency Certificate produced by a resident of a contracting state,” Mauritius said.

 

The ministry, however, said that India had acted promptly to clarify the situation regarding the validity of the TRC and it had been specified that “the TRC produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the income tax authorities in India will not go beyond the TRC and question his residence status.”

 

Mauritius, which has been often accused of being used as a conduit for routing of untaxed funds to and from India, said further that a Certificate of Residence delivered by the Mauritian authorities would constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for claiming benefits under Indo-Mauritian DTAC.

 

The arrangement “continues to be in force pending ongoing discussions between India and Mauritius. Furthermore, we are comforted by the declaration of the Indian minister of finance to the effect that India will not take unilateral action to revise the Mauritius-India DTAC,” it added.

 

The India-Mauritius Joint Working Group met in December, 2011, and again in August, 2012, to discuss concerns on the operation of the India-Mauritius DTAC.

 

Mauritius has agreed with India on a Tax Information Exchange Agreement, which incorporates provisions on assistance in the collection of taxes.

 

The next meeting of the group is scheduled to take place in the last week of this month, in India.

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