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Airport authorities provide various services for passengers and airlines. To operate an airport, they charge various fees to passengers and airlines. Amount charged to passengers, commonly known as the TFCs, is classified into 3 areas -

  • Tax [ T ] – charged / levied by government authorities; airports only facilitate tax collection and remit it to the government
  • Fee [ F ] – charged by airport authorities for providing certain services. E.g. Infrastructure fee, security fee etc.
  • Charge [ C ] – charged by airport authorities for extending facilities to passengers; these are charged as “Passenger Facility Charges”

Though governments and airports impose TFCs on the end consumer which are the passengers in this case, airlines play an important role in the TFC collection and remittance ecosystem.

What is the role of airlines in the TFC collection and remittance ecosystem?

  • TFCs are published as two letter unique code and are collected on the ticket, at the time of sale. An airline’s ticketing system needs to ensure that appropriate TFCs are charged to the passengers and collected during the ticketing process
  • Airlines then remit these taxes to airport authorities or government agencies depending on TFC definitions. Nature and taxation rules of these TFCs determine whether the issuing / uplifting airline is responsible for remittance. It is mandatory for an airline to remit TFCs depending on the taxation rules.
  • Failure on the part of an airline to remit these charges leads to severe implications or penalties, even the possibility of revoking airline license to operate on an airport.

Airline Challenges

Some of the prominent challenges that airlines face are:

  • Comprehending the tax conditions
  • Developing algorithms to compute amounts
  • Flexibility to handle dynamic conditions and computation rules

These are better explained in the below 4 stage process.

 

4 Stage TFC Process

Stage 1 – Collect

Airlines are a part of a larger ecosystem of taxation process and money changes hands multiple times before it reaches the final authority.

  • TFCs are collected from passengers at the time of ticketing, which means that travel agents, online travel agents, other sales offices and sales channels should be able to apply the taxes correctly
  • Airlines must validate whether appropriate TFCs have been collected on the issued ticket or not
  • Similarly, refunds or reissue transactions must be verified for tax accuracy

There are possibilities of leakages at every stage. An airline’s ability to control the money exchange process determines the success of plugging these leakages.

Stage 2 – Interline

Airlines frequently issue tickets having different uplifting airlines (interline) as part of the itinerary.

  • In this case, the ticket issuing airline collects taxes and, in most cases, the uplifting airline is responsible for remittance
  • That means, the uplifting airline needs to bill appropriate amount to the issuing airline
  • On either side, each airline needs to have a mechanism to accurately compute taxes

Verification of taxes charged in interline billing is a very critical activity in plugging leakages.

 

Stage 3 – Bill

Airports send invoices to airlines to remit taxes. Airlines need to verify taxes billed in order to plug leakages.

  • Charges applicable for an airline for remittance might be different from charges defined for end passenger. Airports publish “airport tariffs” for various services such as landing, parking as well as “airport TFCs”
  • Airlines need to ensure that taxes are appropriately remitted based on “published tariffs” for applicable TFCs which are based on actual passenger count
  • It is imperative that airline should have the ability to integrate actual passenger count from source systems like RA or DCS, and verify incoming invoices based on “published tariffs”

In other words, it is essential that reconciliation of actual passenger count is done with the data presented in the incoming invoices. This will ensure that there are no discrepancies during remittance. An ideal scenario would be - with any country / station tax available and information from the departure control / RA system, an airline can generate expected TFCs to know how much tax is applicable.

Stage 4 - Remit

Certain taxes must be remitted by the airline directly to government agencies and a report must be filed covering appropriate details for remittance.

Absence of an accurate computation engine at the airline side will lead to incorrect tax remittance.

 

Is it easy to compute TFCs?

TFC computation process is complex.

  • Each TFC has certain driving parameters to determine how much amount is to be charged. Arriving / departing passenger counts, airline operated, airport, domestic / international journey, currency of sale, date of sale, date of travel, class of travel, passenger type (adult, child, infant) and many more data elements determine the chargeable amount.
  • In addition, each TFC has exemptions listed. Hence it is essential to validate exemptions and determine non-taxable passengers.
  • Also, charge computation can vary by airline and aircraft type in some cases.

On one hand, airlines may not have global reach to understand and implement taxation rules and compliance guidelines. On the other hand, they also want to ensure compliance to TFCs rules and regulations in order to avoid penalties from the government authorities.

 

What can airlines do to simplify the “collect – interline – bill – remit” cycle?

  • Store tax data with its appropriate version – e.g. all taxes to be collected in passenger ticket are listed in Ticket Tax Box Service [ TTBS ] source while all interline taxes are defined in Revenue Accounting Tax Database [ RATD ] source. Each airport defines its own tariff listing which is considered during airport invoicing process. Note that definition of taxes applicable to passengers may differ from taxes collected from airlines as part of airport invoices. These variations of tax definition based on its usage, determine the accuracy of tax calculation
  • Accurately calculate all applicable taxes across the sales as well as the uplift network
  • Validate accurately calculated taxes against actual tax amounts involved in transactions. e.g. –
    • For verifying agents tax collection - validation would be calculated tax vs collected tax
    • For verifying interline billing - validation would be calculated tax vs billed tax, by partner airline.
    • Similarly, calculated tax can be validated against tax component from airport invoice.
  • Follow tax filing process, as defined by tax authorities worldwide

Contact our experts to know more about how you can simplify your tax processes and calculate your taxes accurately.

 

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