The domestic aviation industry’s expectations from the Union Budget got a boost when President Pranab Mukherjee mentioned the sector in his address to both Houses of Parliament. Mukherjee’s comment that the Government will develop low-cost airports to promote air connectivity to smaller towns is also making the industry hope that the Budget will address the pending issues including rationalising the taxes on aviation turbine fuel (ATF) and providing funds to Air India.

The industry is hoping that the Union Budget will show the way in reducing operating costs of private airlines by reducing the tax on ATF which varies from 4 per cent to 30 per cent.

With States unlikely to forgo the huge revenue generated from the high taxes on ATF, the industry is hoping the clear majority that the Modi Government has in the Lok Sabha may provide a way out. The Centre can notify ATF as a declared good through a constitutional amendment which will have to be voted in Parliament. If the amendment is passed it will mean that ATF will attract a uniform duty of 4 per cent throughout the country.

Other expectations Another area where the sector has some expectations is the maintenance, repair and overhaul (MRO) industry. Vivek Gour, Managing Director and Chief Executive Officer, Air Works, suggests that “the Budget can look at sorting out certain tax anomalies which are affecting the sector in India.” According to him, the Customs Department does not treat aircraft engines as spares and levies a 25 per cent customs duty, while other aircraft spares are allowed to be imported duty-free.

Further, customs duty is also imposed on some tools needed for repairs by the MRO industry. “This equipment is not made in India, and hence, their import does not hurt the domestic industry. The tools are expensive and have a long life stretching up to 25 years at times. Imposing an import duty sees the cost of MRO services in India shoot up,” he points out.

Analysts are hoping for a comprehensive policy for the sector as a whole. Conceding that this is not really the job of the Budget, Dhiraj Mathur, Executive Director and leader, Aerospace and Defence, PwC, feels that if the broad contours of the policy are announced in the Budget it will help.

A host of analysts, including Amber Dubey, Partner and India Head Aerospace and Defence, KPMG, agree with Dhiraj, but add that the Budget should allow private airport operators to issue tax-free infrastructure bonds.

(With inputs from Adith Charlie)

Related Topics