The Hindu Business Line : Govt urged to extend exemption on withholding tax

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New Delhi Feb. 20 The Chairman and Managing Director of Air India, Mr V. Thulasidas, has said that the withdrawal of exemption on withholding tax on lease of aircraft and aircraft engines would put additional financial pressure on the domestic aviation industry.

"All airlines need the exemption that the Government currently provides on withholding tax. Its re-imposition would add to the cost of the airlines and make us uncompetitive vis-à-vis other international airlines. However, it is still too early to say whether the re-imposition of the tax will lead to any fare hike," Mr Thulasidas said, after signing a memorandum of understanding with General Electric Company.

Leasing aircraft

The airline that is to purchase 68 brand-new Boeing aircraft would also look to lease some of the aircraft being inducted into the fleet.

The Finance Minister, Mr P. Chidambram, has indicated that exemption on withholding tax on lease of aircraft and engines would cease from April 1 this year. Almost all the domestic airlines are looking at a combination of lease and purchase of aircraft to carry out their operations, and have been pleading for the exemption to be extended further.

"Although the exemption has been there for several years, it is only now that the industry is on a high growth curve. The introduction of the withholding tax could adversely impact the growth curve, as aircraft leasing finance companies have a gross up clause in their agreement through which the withholding tax is paid not by the leasing company but the airline," an official of a low cost airline said.

Japan and Australia that previously imposed withholding tax have withdrawn it, airline officials pointed out.

Indian, AI Merger

Commenting on the proposed merger of Air India and Indian, Mr Thulasidas said that is was likely to get underway by March this year.

"There is likely to be a one-time integration cost of around Rs 150 crore towards the settlement of wages itself. The Government is clear that when the merger gets underway there will be no job loss and the process would create a mega airline that would have a combined fleet of more than 100 aircraft," the airline CMD said.

Confirming that there would be a delay of about two months in the delivery of some purchased Boeing 777 aircraft, Mr Thulasidas said that the airline would now look to launch non-stop fights between Mumbai and New York with the new aircraft from May.