Airlines to add Rs 200 cr to tax kitty

Exemptions on the withholding tax on aircraft leasing charges have ended.

The government can hope to get an additional Rs 200 crore in taxes from airlines in the next one year with the exemption on the withholding tax on aircraft leasing charges coming to an end today.

"This (extending the the exemption) will require an amendment to the law. All applications which had come to us have been cleared. There are no pending applications," Finance Minister P Chidambaram said today.

Chidambaram had announced the exemption in the Budget this year.

Aircraft leases already cleared by the government will not attract the tax.

However, all leases being cleared from now on will have to pay the tax, which varies between 30 and 48 per cent of the lease cost.

The monthly lease cost of an aircraft like the Airbus A 320 is $250,000 to $300,000. The aviation sector is projected to have a demand for about 200 aircraft in the next 12 months. A substantial part of this will be leased as not many aircraft are available for outright purchase.

The civil aviation ministry estimates that the Air India and Indian Airlines will have an additional burden of Rs 86 crore and Rs 91 crore respectively, owing to the tax on leasing charges. Private airlines too will be similarly hit.

The cost of operations of the low-cost airline operators will go up and many of the launch plans of new carriers that were depending on leased aircraft to start operations, are likely to go off schedule as a result of this.

Civil aviation ministry sources said many airlines had applied to the government to lease aircraft in the last two months to avoid paying the withholding tax on future leasing charges. But, the government's decision to link aircraft export to availability of slots at airports had spoiled the plans of most.

The worst affected will be the existing and proposed low-cost carriers, which will see their cost spiralling. "Our entire cost structure has changed and we will have to take a relook at our operations," said an official with a low-cost operator.

The additional cost on leasing will also adversely affect the plans of both Air India and Indian Airlines to add new routes till their fleet acquisition plan gets underway. The government allowed both carriers to depend on leasing to meet aircraft demand till the newly bought aircraft join their fleet.

Besides, the government may also bring down the age of aircraft to be bought or leased by an airline to seven years from the present 15 years.

This will add the cost of getting aircraft on lease as the newer aircraft would be more expensive. This will also mean that Indian Airlines will have to replace some the old aircraft in its fleet with newer ones.