Big tax hurdle before Deccan, Kingfisher

A simple merger between Deccan Aviation Ltd, which operates Deccan, India’s biggest low-cost carrier, and Kingfisher Airlines Ltd, is being ruled out by senior executives at UB Group, which owns Kingfisher, over a tax clause that denies aviation companies the benefit of carrying forward and setting off losses against future profits in the event of an amalgamation.
Kingfisher Airlines has accumulated losses of some Rs1,200 crore and Deccan Aviation has losses of at least Rs800 crore, which, if they continue as separate firms, can be set off against profits, potentially saving up to 22.66% in taxes—equivalent to Rs453 crore. This is because they will not have to pay tax at the 33.99% corporate tax slab, but at the 11.33% minimum alternate tax (MAT) rate until such time that accumulated losses are made up in subsequent profits.
The benefit on taxes could be substantially more than Rs453 crore as both the aviation firms are expected to make more losses in months to come before making any profits.
“A straightforward merger is ruled out unless we want to forego benefits of the losses,” says Ravi Nedungadi, group chief financial officer of UB Group, which takes its name from the Bangalore business house’s flagship United Breweries Ltd.
06/12/07 Tarun Shukla and Mehul Srivastava/Livemint

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Categories: Kingfisher Dec 2007, Simplifly Deccan Dec 2007