From cost perspective, one of the primary focuses of the
industry is on ATF which usually accounts for 30-40% of the operating cost of
carriers. The industry would like the Government to give ATF a 'declared good'
status which would rationalise the sales tax/VAT, thereon such that it is scaled
down from the current range of 5-30% to 4-5%. Further, since the excise duty on
such ATF is a significant cost, the government should sincerely look at
providing a mechanism to take credit for such duty paid on such ATF against
service tax payable on air travel. These two measures alone will result in
significant cost advantage to the aviation industry.
Clarity on issues regarding taxability of various
types of leasing expenses is also a critical requirement to motivate the
aviation industry in going ahead to lease more and more aircrafts and hence
contribute to the growth of the Indian aviation sector. Since lease agreements
as a norm break leasing payments under various nomenclatures, there is constant
controversy regarding its exemption from withholding taxes under the double
taxation avoidance treaty provisions.
Currently, such controversy costs the industry
severely when it needs to pay such withholding taxes on lease payments on its
own account. The industry would feel far relaxed from such uncertainties if the
budget could reinstate section 10 (15A) of the Income Tax Act, which permitted
exemption from withholding tax on aircraft lease rental payments and obligations
arising out of lease agreements.
From operational perspective, the aviation
industry faces severe direct tax withholding responsibilities on numerous
technologies/services which the industry needs to mandatorily source from
outside India. Most of such global large technology/service-providers are not
keen to be entangled with Indian tax compliances including obtaining permanent
account number (PAN) and hence undertake net of tax contracts where by all
responsibilities are on the industry.
Since the taxation laws apply a penal tax
withholding rate of 20% in the absence of PAN, the industry needs to gross up
such payments and bear the same. This results in increasing the cost of such
technology/services by more than 25% which costs dearly to the cash strapped
industry. The government should look at easing such requirement by clarifying
the right approach in such peculiar circumstances so that the costs can be
Fund infusion by international airlines into
ailing Indian aviation sector is an issue which has proponents on either side.
Views which favour such initiative seem to be keenly awaiting the regulatory
easing of foreign direct investment (FDI) in the aviation sector so that
international airlines are able to participate financially and in return
inculcate the best operational practices into the industry. What path the
government takes would be interesting to view.
It needs to be zealously seen how the Budget 2012
infuses growth measures into the aviation industry and opens roads towards
development of the same to be a sustainable and profitable industry.
Moneycontrol.com, India, dated