 "Aircraft repair centres might get incentives soon")
To finalise the draft, a meeting of all stakeholders was held in the ministry of civil aviation (MoCA) on March 21. The policy is expected to be put up for public consultations this week.
“The policy aims at creating a level-playing field by giving tax exemptions to the MRO industry. The central government would have to give custom and service tax exemptions, whereas the states would provide exemptions from value added taxes and octroi,” said an industry source involved in the negotiations. MoCA has had several rounds of discussions with concerned ministries and departments, state governments, MRO industry, airlines, airports and other stakeholders to determine the norms in the draft policy.
Rajesh Bali, secretary, Business Aircraft Operators’ Association, said, “Due to its geographical position, India can be leveraged as a hub for MRO operations. But the tax structure in the country is such that even Indian carriers today find it cheaper to fly their aircraft overseas for service and repair.”
The financial stress in the industry made even GMR look at selling stake in the aircraft maintenance facility it jointly owns with Malaysian Aerospace Engineering Sdn Bhd, the Hyderabad-based MAS GMR Aero Technic Ltd, added another industry insider.
MRO in India is estimated at $700 million but only 5-10 per cent of the business is carried out within the country. Indian carriers today prefer to get their fleet serviced in places like Colombo, Singapore, Malaysia and Dubai due to the prevalent tax structure in the country, which makes MRO operations up to 50 per cent costlier.
MRO companies have to pay taxes to the extent of 40 per cent for providing services in India.The industry is projected to double in size to clock business of $1-1.5 billion by 2020. “MRO is a near $ 1-billion opportunity that has been gifted away by India to its neighbours. Today, Indian carriers are forced to fly empty aircraft and crew abroad, pay in foreign currency and then fly the aircraft back after repairs. A colossal loss of revenue, fuel, foreign exchange and Indian jobs. This needs to be reversed on priority. Key reasons include a huge tax disadvantage, cumbersome customs and security procedures, high airport charges and lack of inter-ministerial and inter-agency cooperation. These problems are man-made and hence surmountable,” said Amber Dubey, partner and India head of Aerospace and Defense at global consultancy KPMG.
The industry executive, who was part of the discussion in the ministry, added making the Indian MRO industry competitive would not just help airlines save on costs of sending their aircraft abroad for repair but also generate employment in the country. The proposal would require clearance from the finance ministry and could only see the light of the day after the general elections are over and a new government takes over. Dubey added, "With the Indian fleet size expected to double by 2020, the need to build a robust MRO industry in India is critical. We need to have a zero-rate of indirect taxes like import duty (currently limited to a 12-month period), service tax, VAT and octroi (wherever applicable). Customs and security procedures need to be liberalised, airport charges need to be drastically reduced, and MRO training facilities need to be developed on a PPP basis."
The Indian government has been trying to address the concerns of the industry by offering a waiver in customs duty for import of spares and testing equipment. In the Union Budget of 2012-13, then Finance Minister Pranab Mukherjee had waived customs duty for import of spares and testing equipment by MROs. However, the duty waiver could be availed only if the spares were utilised in three months. In the Union Budget presented for 2013-14, Finance Minister P Chidambaram modified that condition by extending the duty waiver period to a year.