Budget 2023: Aviation industry has a wishlist but doesn't expect much action

"The Budgetary allocation for aviation by the government in the past few years have been mostly to handle the loans and debts for the financial restructuring of Air India," a second senior airline official said.

He added that the Budgetary allocation of aviation apart has fallen or remained the same for the last few years despite the sector being severely affected by the COVID-19 pandemic.

Last year after the Budget for 2022 was announced IndiGo's then chief executive officer Ronojoy Dutta had said that the industry was expecting tax concession in the forms of cuts in aviation turbine fuel (ATF) excise duty and allocation of concessional finance to airlines to help us come out of the pandemic. But the same was not announced.

This year as well airlines are hoping to receive several monetary benefits and concessions from the government including a reduction in excise tax on ATF, which accounts for a significant chunk of an airline's operational costs.

"GST Council should allow input credit of the 5% GST we collect from economy class passengers. VAT on ATF should be converted to GST, and input credit in the same should be allowed," said Capt. Simran Singh Tiwana, chief executive of Star Air said.

Jet fuel constitutes about 40-45 percent of the total cost of an airline.

Industry players were also hoping for concessions on goods and service tax (GST) on various undertakings such as the purchase and re-imports of aircraft and aircraft parts, and some reduction in the interest rates for the working capital provided to airlines and airport operators.

Industry participants in aviation maintenance, repair, and operations have also requested the government to include MRO's under the ambit of airport infrastructure going forward in order to facilitate the development of more MRO facilities in the country.

"Including MRO facilities as a part of airport infrastructure will promote prominent airports in the country to set up MRO facilities at their premises which will boost the development of the sector," a senior official from a domestic MRO said.

Rating agency ICRA foresees the Indian aviation industry expects financial aid and reduction in levies and taxes in the immediate near term to revitalise operations and improve its financial health, which includes rationalisation of duties on ATF and reducing airport charges, parking and landing along with navigation charges among others.

"The sector will also expect an extension of the ECLGS scheme or similar credit schemes to support the sector in terms of liquidity support given the adverse impact of the high ATF prices and depreciation of the INR against the USD," ICRA said in its report.

The Government is also expected to undertake further measures to boost tourism like developing more iconic tourist destinations and expanding the e-visa/visa-on-arrival scheme to additional countries.

In this backdrop, ICRA expects the budgetary allocation to the industry to be higher than past.

Airport operators have sought a reduction of the goods and services taxes (GST) for services at airports and doubling the limit of duty-free liquor to 4 lters in order to improve their bottom line. Any decision on reducing GST has to be decided by the GST Council and therefore it cannot be addressed in the Union Budget.

There is also an expectation that the government will take measures to remove bottlenecks that were preventing more aircraft lessors from setting up shop in India.

International lessors have now been apprehensive about setting up shop in GIFT City due to the perceived bureaucratic hindrances in India. The aviation sector is hopeful that the government increases tax incentives for companies that are willing to set up shop at the International Financial Services Centre (IFSC) in GIFT City (Gujarat) in a bid to attract foreign aircraft lessors.

A major issue lessors faced in getting planes to India was the lack of GIFT City-cleared airports that can be used to land the aircraft. Furthermore, lessors have also faced issues in repurposing airlines from India.

“The current challenges faced by leasing companies in India are being closely watched by the world’s largest banks and insurance companies. If these issues are not addressed, the fear may lead to increased cost of credit for Indian airlines, as well as damage India’s reputation in the leasing and financing market,” an executive of one leasing company said.

The government has offered a clutch of sops, including tax holidays for capital gains for aircraft leasing companies and tax exemption for aircraft lease rentals paid to foreign lessors, to attract leasing companies to GIFT City.

The industry has also sought more incentives to attract investments in MRO services, in addition to measures announced a few months ago. Last September, the government had come out with a new policy for MRO services that included leasing land through open tenders and abolishing royalty charged by the Airports Authority of India.

Under that policy, the government increased the length of the lease period for land allotted to entities setting up MRO facilities in India to a period of 30 years