The Hindu Business Line : Airlines seek level field

The Federation of Indian Airlines has taken up several taxation issues on behalf of the industry that it hopes the Finance Minister will tackle in next year’s Budget.

Ashwini Phadnis

With Budget 2008-09 round the corner, the clamour for a level playing field among private and public sector airlines has started. The Federation of Indian Airlines (FIA), an apex industry body formed by scheduled carriers in India, has requested the Finance Minister, Mr P. Chidambaram, to provide private sector airlines going in for mergers or acquisitions, income-tax relief as was provided to Air India and Indian to facilitate the merger of the two state-owned airlines.

In its pre-Budget memorandum, FIA has urged that private sector companies engaged in the business of operating aircraft also be allowed to carry forward and set off accumulated losses and unabsorbed depreciation available.

The Finance Act 2007, by amending the provisions of Section 72A, extended the benefits of carry-forward and set-off of accumulated losses and unabsorbed depreciation to the amalgamation of one or more public sector companies engaged in the airline business with another public sector company engaged in a similar business. This decision of the government helped facilitate the merger of Air India-Indian. Since the merger got underway, not only has the stalled merger of Jet Airways and Air Sahara been completed but Kingfisher Airlines has also acquired a stake in Air Deccan without the income-tax provisions made available to the state-owned carriers.

ATF prices

Arguing the case, FIA has pointed out that the environment in which different airlines operate and the high capital costs associated with the airline business are the same for both public and private sector airlines. As the voice of the airline industry, FIA works to identify and take up issues on behalf of the industry with various regulatory authorities, government departments and other key stakeholders.

Furthermore, the Federation has not only sought declared good status for aviation turbine fuel (ATF) so that it attracts a uniform 4 per cent sales tax across the country, but has also called for cutting by 50 per cent the Customs duty on ATF for domestic operation to 5 per cent.

Such a move, the FIA feels, would help address the unsustainable disparity in the price of ATF for domestic airlines, especially as ATF rates for domestic operations are priced 70-90 per cent higher than international benchmarks.

The Federation has pointed out that in October, while ATF was available in Singapore for Rs 23,064.31 per kilolitre and at Rs 24,806.23 per kilolitre in Dubai, the equivalent price in Delhi was Rs 39,767.84, while in Chennai it was Rs 43,298.75 and Rs 43,907.02 in Thiruvananthapuram. Fuel alone accounts for more than 40 per cent of the total operating costs of airlines within the country.

The FIA has also called for a review of the service tax being levied on first and business class international air-travel and on landing, airport and air navigation fees.

Tax exemptions

The Memorandum also points out that tax on fringe benefits such as free and concessional passage given to airline executives and their families, expenses for crew, hotel accommodation provided to passengers due to delays and cancellations and expenses on catering and in-flight entertainment cannot be considered as fringe benefits.

“Airlines do not grant any LTA or LTC benefits to employees. Instead, free or concessional passages are given which do not involve cash outflow for the airlines. Just as LTA is exempted under the Income-Tax Act, since these passages are in lieu of LTA, the same treatment should be provided for free and concessional passages,” the Federation has argued. It has also called for reinstating tax exemption for foreign pilots and engineers, which was earlier available for 36 months from the date they arrived in the country.

“The shortage of pilots within the country is well known and, although steps have been taken to recruit more first-officers, the latter would take a minimum of 2,500 flying hours or three years to take command. The industry has missed this exemption and its reinstating would help it to attract foreign pilots and engineers till such time that local talent is developed,” the FIA has said.