The Hindu Business Line : Tax exemption on leased aircraft — Will Budget back aviation sector's hopes?

THE domestic aviation industry is eagerly awaiting the Union Budget 2005-06 as their future operations could hinge on the Finance Minister's stand on tax exemption on leased aircraft.

The Finance Minister, Mr P. Chidambaram, in his 2004-05 Budget, proposed the withdrawal of tax exemption on any payment made by an Indian company to acquire an aircraft or aircraft engine from a foreign state or enterprise.

The withdrawal was to come into effect from September 1 last year, but the Minister decided to put off its implementation till April 1 this year. Withdrawal of the exemption would have meant a tax rate of more than 40 per cent.

With lease rentals for aircraft firming up in the recent past, the flight path of several airlines can be severely affected if the Finance Minister decides to go ahead with the proposal.

There is also the issue of taxes on aviation turbine fuel (ATF). Various States levy sales tax ranging from 4 per cent to more than 30 per cent. This is one of the main reasons why domestic airfares are much higher than international fares. Domestic airlines estimate that ATF accounts for 25-30 per cent of their costs.

These issues have been taken up the Union Civil Aviation Minister, Mr Praful Patel, with the Finance Minister. The decision to continue with the exemption on payments made for leasing aircraft for some more time will come as a major relief to most airlines.

Indian Airlines has leased 15 Airbus A-320 aircraft and two more are expected in March. The airline board has approved a proposal to lease five Airbus A-319, 12 wide-body aircraft and six ATR aircraft.

The board of Air India has also approved a proposal to lease 18 Boeing 737-800 aircraft that will be used to start the new low cost airline, Air India Express Ltd.

Major players in the private sector too are operating with leased aircraft. While 18 aircraft in Jet Airways' 42-aircraft fleet are leased, all 20 aircraft in Air Sahara's fleet are on lease.

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