The Hindu Business Line : `No tax exemption for aircraft lease agreements'

Although the proposal to bring aircraft lease payments under the tax net has been a long standing wish of the Finance Ministry, the Ministry of Civil Aviation had managed to get at least three extensions for such an exemption.

New Delhi , June 9

Aircraft lease agreements entered into by domestic aviation companies after April 1, 2007 may prove to be tax inefficient, with the Finance Ministry not inclined to provide yet another extension to withholding tax exemption that is currently available on aircraft and engine lease payments for agreements entered up to March 31, 2007.

A senior Finance Ministry official hinted that this exemption was unlikely to be extended and pointed out that this formed part of the list of exemptions that are under the Government scanner for withdrawal.

The Ministry had last month sought comments from various stakeholders on a list of exemptions that the Government was reviewing as part of its attempts to simplify the income-tax law, minimise the distortions within the tax structure and broaden the tax base.

Besides, with Air India and Indian Airlines finally entering the market to purchase more than 100 aircraft over the next few years, the Government may be feeling that there is no need for the current exemption to continue.

Airlines' stance

Airlines have also expressed reservations about the thinking in the Finance Ministry stating that any move to impose tax could prove costly for the industry. An airline official pointed out that the tax could be as high as 42 per cent depending on which country the aircraft or engine is leased.

Several domestic airlines including Indian Airlines plan to lease aircraft during 2007. A senior official of a low-cost airline said the airline is planning to lease 10 aircraft at an annual lease rental of more than $50 million. "The additional amount that we may have to bear on account of withholding tax would depend on the country from where the aircraft is finally leased," officials said.