Moneycontrol
Last Updated : Mar 02, 2015 07:26 PM IST | Source: Moneycontrol.com

Union Budget 2015: Travel may become expensive on proposed service tax hike

The industry was seeking updation of standards for security equipment, establishment of a 'green' channel for maintenance, repair and overhaul (MRO) equipment and allocation of appropriate funds for air navigation facilities.

 
 
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Kankana Roy Choudhury
moneycontrol.com


Finance minister Arun Jaitley failed to make any big bang announcements for the aviation sector. Except may be the proposed hike in service tax to 14 percent from 12 percent may impact aviation companies.


The last Budget had announced schemes for development of new airports in Tier I and Tier II cities. However, it did not have anything specific for the aviation companies.

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The industry had been seeking updation of standards for security equipment, establishment of a “green” channel for maintenance, repair and overhaul (MRO) equipment and allocation of appropriate funds for air navigation facilities.


The wishlist included promotion of MRO sector, including removal of service tax, reducing VAT on MRO activities, 10-year tax holiday, abolition of central excise duty on MRO component etc. It also sought to treat ATF as a “declared goods” so that VAT (on ATF) could be reduced to 4 percent, making airlines more viable as ATF constitutes more than 45 percent of the cost. Besides, infrastructure status has also been sought to enable access to funds with lower rate of interest through external commercial borrowings.


State of the industry


Despite an extraordinary traffic growth over the past decade, the situation is still grim for the sector with most airlines staring at huge losses. National carrier Air India is sitting on a pile of massive debt, amounting around Rs 44,000 crore as of FY14. Kingfisher Airlines has been grounded over payment default, while SpiceJet is hoping for a turnaround post a change in management control.


But the sector has been seeing some reprieve on the back of falling crude and entry of new players like Vistara and AirAsia, which is expected to keep the competition alive.


After posting seven quarters of consecutive losses, Jet Airways has finally managed to report an operating profit of Rs 3 crore in its third quarter ended December, supported by falling fuel costs and increased revenues.


Growth potential


India has the potential to become the third-largest aviation market by 2020 and the largest by 2030, says a FICCI-KPMG report.


According to the report, the Indian civil aviation industry is on a high growth trajectory, albeit with minor hiccups. “The industry has ushered in a new wave of expansion driven by low cost carriers (LCC), modern airports, foreign direct investments (FDI) in domestic airlines, cutting-edge information technology (IT) interventions and a growing emphasis on no-frills airports (NFA) and regional connectivity,” the report said adding that the industry is amongst top 10 in the world with a size of around USD 16 billion.

First Published on Mar 2, 2015 12:59 pm
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