The Union civil aviation ministry has proposed the lowering of customs duty for aircraft imported by leasing companies set up in India.
The ministry has asked the finance ministry to consider reducing customs duty for lessors from 21 per cent to the prevalent rates of zero per cent for scheduled and two per cent for non-scheduled operations.
Aircraft imported by non-scheduled operators, such as Alchemist Airways and Air Odisha, face a 2.5 per cent import duty whereas planes imported by scheduled operators, such as IndiGo and SpiceJet, are exempt from tax at present. Aircraft imported for any other purposes, including private use, attract 21 per cent customs duty.
‘Fillip to leasing’
“Leasing companies fall under the third category. We have made a proposal to the finance ministry to reduce the customs duty on import of aircraft by lessors to give a fillip to the leasing business in India,” civil aviation secretary R.N. Choubey told The Hindu .
According to the proposal, aircraft meant to be leased for scheduled operations and non-scheduled operations should attract the customs duty rate prevalent for such operations at present, Mr. Choubey said. So, if a leasing company imports planes for leasing it to non-scheduled operators, import duty of 2.5 per cent may be levied instead of 21 per cent. “In such cases, the leasing company will have to produce proper legal leasing document to the authorities,” the secretary said.
“We want to remove the obstacles for leasing companies. Reducing custom duties for importing planes would attract lessors towards setting up business in India,” he said.
SPVs needed
However, some aviation consultants were unimpressed by the proposal. “India needs to set up special purpose vehicles (SPVs) in order to give a boost to the leasing business. Further, double taxation avoidance treaty should be in place to allow leasing firms to set up their base in India as present tax rates are very high,” Mark D. Martin, Founder and CEO of Martin Consulting said. “There should be complete exemption on tax on leased assets for SPVs.”
Mr. Martin further criticised the different rates of import duties on scheduled, non-scheduled and private aircraft operations. “First of all, there should be no import duty for leased assets as aircraft is still owned by a foreign player. Even if there is an import surcharge, there should be no discrimination between scheduled and non-scheduled operations,” he said.
