The Hindu Business Line : House panel for withholding tax exemption on aircraft lease rentals

A Parliamentary Standing Committee has supported the Civil Aviation Ministry's stance that its powers for withholding tax exemption on rentals for lease of aircraft be restored.

In his Budget speech for 2004-05, the Union Finance Minister, Mr P Chidambaram, proposed that any payment made by an Indian company to acquire an aircraft or an aircraft engine on lease from a foreign State or a foreign enterprise would not be exempt from tax.

The exemption on withholding tax is proposed to be withdrawn in respect of all agreements entered into on or after September 1, 2004.

In its 78th report tabled in the Parliament on Wednesday, the department-related Parliamentary Standing Committee on Transport, Tourism and Culture held that removal of the existing powers of the Civil Aviation Ministry to exempt rentals for lease of aircraft and other equipment from withholding tax will have adversely affect the civil aviation sector.

The report said the impact would be unfavourable, particularly at a time when the Government plans to increase private sector participation in providing infrastructure facilities as well as air services.

"The committee feels that this will also have an uneven impact on our national carriers vis-à-vis other private airlines as it would affect all other airlines which are planning acquisition on dry leasing. However, the airlines, which have completed the phase of its acquisition through this route, will not be affected much", the report said.

The Parliamentary panel has also recommended that the Government should take immediate steps to exempt the Indian carriers from payment of taxes on aviation turbine fuel (ATF) that are levied by the Centre/State Governments.

"The committee strongly feels that this would certainly solve one of the long pending demands of Indian Airlines and Air India and help them overcome the adverse effects of the high cost of ATF on cost structure and profitability," the report said.