Carriers looking for wind under the wings

ASHWINI PHADNIS VARUN AGGARWAL | Updated on January 20, 2018 Published on February 18, 2016



Industry hopes for standardised tax regime, improved infrastructure

With the last Union Budget providing nothing major for the domestic airline sector, there is a lot of hope this year though the expectations remain by and large the same. Ankur Bhatia, Executive Director, Bird Group, and Member, National Committee on Civil Aviation of the Confederation of Indian Industry, hopes the Budget will address the challenges the Indian aviation industry faces — mainly complex policies, aggressive price cuts, multi-tiered tax system and infrastructure.


Amber Dubey, Partner and Head, Aerospace and Defence, KPMG, is hoping the Budget will notify changes in the tax structure as per the draft National Civil Aviation Policy (NCAP 2016), which proposes zero-rating of the service tax on MRO.

With airports running out of capacity, the crucial infrastructure sector is also pinning its hope on steps to help its revival.

Even if all the current airports are built to their full design capacity and the Navi Mumbai one is opened, around 40 per cent of unconstrained demand in India will be choked off in the absence of any new airports being developed. The sector, therefore, has huge expectations from the Budget, to remain relevant.

Fuel prices

Pointing out that the decline in the price of aviation turbine fuel (ATF) has given relief to the sector, Niyant Maru, Chief Financial Officer, Vistara, says that the industry is “now looking for definitive steps to further incentivise the sector and enhance its global competitiveness.”

Players will be keenly watching to see whether the Budget will have any steps to provide declared goods status to ATF, a move which will cap sales tax at a standardised rate of 4 per cent across the country. At the moment, the tax varies from 3 to 30 per cent. “This will facilitate emergence of Indian airports as hubs and stabilise ATF prices across the country, lowering tariff for passengers,” said Satyan Nayar, Secretary General, Association of Private Airport Operators (APAO).

APAO also recommends full exemption of service tax on all services rendered by CISF at the airports, by including this in the negative list.

Almost all domestic airlines will also be following the Budget for any clues about reinstating withholding tax on leasing of aircraft. The facility was withdrawn in 2007.

And of course, Air India has a lot more to hope for from the Budget — to see whether the ₹4,300 crore promised by the government as part of the airline’s turnaround plan is made good.

Air India revival

Taking this further, Dubey says he is hoping the Budget will announce a clear road-map for privatisation of Air India. “Else, Air India may continue to bleed under increasing competition, falling market share and increasing costs. The taxpayers’ funds, thus saved, can be used to provide compensation to states for forgoing VAT on ATF and funding RCF.”

However, Kapil Kaul, Chief Executive of Centre for Asia Pacific Aviation (CAPA), says he usually has “no expectations from the Budget because of repeated disappointments for the past so many years.” He adds that since the government has limited fiscal space, aviation may not also have much in this year’s Budget.

Published on February 18, 2016
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