Tax clouds hang over aircraft leasing

New Delhi: The finance ministry is toying with the idea of withdrawing the exemption on withholding tax for lease rentals of aircraft.
The levy was kept in abeyance to allow Indian and Air India to expand their fleets through leased aircraft. The finance ministry has now indicated the exemption may be scrapped. It is likely to be withdrawn from April 1 on aircraft as well as engine lease. Over two-thirds of the domestic carriers’ current fleet of 240 aircraft are on short- and long-term lease while the remaining one-third are owned by the airlines.
However, the finance ministry, which is looking at axing exemptions to expand the tax base, is not in favour of extending the benefits available to airlines, an official said.
This would translate into higher airline tariffs for fliers as aviation companies are likely to pass on the tax burden to passengers.
“If the exemption is withdrawn, it would lead to increase in costs by at least Rs 60 per seat, assuming an average withholding tax of 10%,” explained the director of a leading low-cost carrier.
Explaining the tax calculations, CEO of a low-cost carrier said, “The average monthly lease rent of an Airbus A320-type aircraft is about 1% of the price value, which turns out to be $400,000 per month per plane. Assuming an average 20% withholding tax, it would result in yearly tax of $960,000 per plane.”
03/02/07 Sunny Verma & Deepshikha Sikarwar/Economic Times

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Categories: General Aviation feb 2007