FOCUS BUDGET Budget 2020

Exempt airlines from MAT

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Being a long-term gestation industry, there has been a huge amount of accumulated book losses in the whole sector.

With a 20 per cent annual growth in air passengers, India is the fastest growing aviation market in the world. However, air travel is still an expensive proposition for over 98 per cent of Indians. Airlines in India have been operating in a hostile cost environment and being a long-term gestation industry, there has been a huge amount of accumulated book losses (including unabsorbed depreciation) in the whole sector. It is requested that airlines should be exempted from application of MAT till all the accumulated book losses (including unabsorbed depreciation) are set off against future book profits.

Lease rentals for aircraft and aircraft engines were exempt from Income Tax under section 10 (15A) of the Income Tax Act, 1961. This exemption has been withdrawn with effect from April 1, 2007 and withholding tax was imposed.

All the lease transactions take place outside India and there is virtually no tax revenue on this account to the Government of India. This section should be reinstated with additional benefits to Indian leasing companies and leasing transactions done in India. It will help in smooth leasing of aircraft and aircraft engines in India.

ECBs help airlines/the aviation sector to source working capital funds from foreign lenders at competitive rates for longer terms. Ministry of Finance allowed a separate window in 2012 for civil aviation sector in India to raise money through ECB. The overall ECB ceiling for the entire civil aviation sector was $ 1 billion and the maximum permissible ECB that can be availed by an individual airline company was $300 million upto 31 March, 2015. Therefore, the industry wish list from this budget includes enhancing the individual airline limit to be based on the capability/capacity of the airline to service ECB, based on its revenue projections; don’t restrict this to end-use obligations.

Allow the servicing of this borrowing through domestic earnings. And finally, don’t put a limit on sectoral utilization and extend this scheme of availing ECB by five (5) years.

Despite India being ATF surplus, the cost of Aviation Turbine Fuel (ATF) in India is amongst the highest (55 per cent more) in the world. Losses of the airlines are primarily driven by high sales tax on ATF as there is no set off available to airlines against the sales tax on ATF. Revenue to all the states on account of sales tax on ATF is only about Rs. 180 crore per month.

Therefore, we recommend for an immediate action to bring ATF cost at par with other competitive markets/ATF pricing should be based on actual costs not import parity. ATF should be notified as ‘Declared Goods’ with concessional rate of 4 per cent as VAT.

Indian MROs are expensive when compared to neighbouring countries like Sri Lanka, Dubai, China etc. This results in loss of job opportunities in India and valuable foreign exchange. Indian MROs are subject to service tax at 14 per cent.

High royalty charges are charged by airports (range from 13 per cent to 30 per cent). There is local sales tax also which are charged adding to the cost. MROs need to be cost effective in India by doing away with high taxes.

The author is Chairman and MD, SpiceJet

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Printable version | Jan 25, 2020 8:44:24 PM | https://www.thehindu.com/business/budget/exempt-airlines-from-mat/article8264685.ece

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