Draft aviation policy: Sops for maintenance, repair & overhaul units

The Centre will encourage states to reduce VAT on MRO services

The draft civil aviation policy has proposed a slew of tax incentives and easier rules to encourage aircraft maintenance, repair and overhaul (MRO) units in India. As of now, 90 per cent of the maintenance work of Indian carriers, valued at about Rs 5,000 crore, is being carried out abroad due to the high-tax regime in the country.

In previous Budgets, the Centre had introduced a few sops for the MRO business. These included tax-free use of spare parts for a year (against six months earlier).

In the draft policy, the aviation ministry has proposed abolition of service tax on MRO 'output services', duty waivers on tools and tool kits and extending tax-free use of spare parts to three years. It has also proposed easing of rules and rationalisation of royalties and levies by airports on MRO service providers.

The Centre, it said, would encourage states to reduce value-added tax on MRO services.

"Airport operators levy royalties of 18-36 per cent of gross revenue, which is passed on to the customer," said a recent Vistara-CAPA report. The report sought service tax on labour, VAT on materials and import duties on domestic MROs be done away with.

"The proposals are extremely positive. Even if 20-30 per cent of Rs 5,000 crore worth of MRO services take place in India, it will boost central revenue and create more jobs," said Bharat Malkani, founder chairperson of the MRO Association of India.