New tax regime to bring down airfares
In a move aimed to bring down airfare, India plans to enter in the business of aircraft financing and leasing activities. Experts feel that India will need to create a tax regime for aircraft leasing more attractive than that of leading countries like Ireland, Hong Kong and Singapore.
Finance Minister Nirmala Sitharaman while presenting her first Budget of the Modi 2.0 government on Friday had said that the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores.
“The government’s proposal to introduce aircraft financing and leasing will bring down the costs for carriers hopefully,” said Sunil Bhaskaran, MD and CEO, AirAsia India.
According to the vision document, key action steps include tax treaties with leading countries and zero rating of GST, Corporate Tax, stamp duty and withholding taxes on aircraft leases.
In a document titled ‘Vision 2040’ the civil aviation ministry had said that by 2040, almost 90% of aircraft being ordered in India should be financed by entities based in India.
“This does not cause any tax loss for the government since the aircraft leasing industry does not exist in India currently. A robust leasing industry in India will add to its GDP, prevent the perpetual drain of foreign exchange, reduce the leasing cost to Indian carriers and create high-end jobs,” the report has said.
Globally, there are around eight aircraft leasing companies with assets of over USD 10 billion. Typically airlines use leasing, debt, export credit and a combination of these for financing their aircraft procurement. The operating lease contracts are tailored to meet the individual requirements of the lessee as against a straightforward commercial bank loan. Since leading aircraft lessors have several decades of specialised experience, they are able to manage and price risks better than commercial banks. This allows them to offer leases at more competitive rates than the latter.
Over 40% of the global commercial aircraft fleet is on a lease basis, especially to airlines that have come up in the last two decades. In India, over 70% of the private airlines’ fleet is on an operating lease basis and the trend is expected to continue.
“For a fleet of 600 aircraft, assuming an annual lease rental of USD 4 million, the foreign exchange outflow is to the extent of USD 2.4 billion. The loss of jobs and taxes thereof are additional...With the gradual depreciation of the rupee, the cost of leasing in rupee terms will rise...,” the report points out.
“Aircraft financing and leasing is an important step towards making the Indian aviation market more self-reliant. A regulatory ecosystem in this area will help boost India’s role in the segment and also have a positive impact on the air passenger growth which lost momentum this year due to capacity issues,” said Aloke Bajpai, CEO and co-founder of travel portal ixigo.