Budget 2016: Mixed bag for aviation as tax sops offset by ATF duty hike

The government's push to improve regional connectivity by reviving 160 airports was negated by a hike in excise duty on jet fuel

It was a mixed day for the aviation sector in Budget 2016 day as the government’s push to improve regional connectivity by reviving 160 airports was negated by a hike in excise duty on aviation turbine fuel which will push up the price of air travel.
 
In order to give a boost to regional connectivity, finance minister Arun Jaitley allocated a sum of Rs 50-100 crore to revive 160 non-functional airports across the country. "In civil aviation, 160 non-functional airports to be revived at a cost of Rs 50-100 crore each and 10 of 25 defunct airstrips,” Jaitley said. This will be developed in partnership with the state government.
Read our full coverage on Union Budget 2016
   
Plans to build no-frills, low cost airports has already been envisaged in the Draft Civil Aviation Policy.  
 

As the sector cheered the grant, it soon turned out that the budget was not all roses. The excise duty on air turbine fuel has been hiked from 8% to 14%. This will partly remove the cushion that airlines were enjoying due to the steep fall in crude oil price.
 
“At a time when ATF in India is already costlier than the global price, it goes against the government’s objective to make flying affordable,” said Amber Dubey, partner and head-aerospace and defence at consultancy firm KPMG.
 
Simultaneously, to give a boost to ‘Make in India’ programme, finance minister Arun Jaitley accepted a long pending demand by the industry to rationalise taxation on maintenance, repairs and overhaul (MRO). Jaitley announced sops include zero service tax on MRO, services, simplification of import processes for aircraft spares, exemption on customs duty for maintenance tools and tool kit and removal of the one year window restriction period for using duty free parts.
 
 Civil Aviation Minister Ashok Gajapathy had earlier said that the finance ministry has been sympathetic to the demand for tax relief to the MRO industry. The earlier tax regime meant that Indian MROs were 20-30% costlier than those abroad, leading even airlines here to repair their aircraft in foreign countries, including Sri Lanka and Singapore. The MRO industry in India is estimiated to be worth $700 million.
 
“Reforms in MRO procedure, duty free period and free stay period are welcome but bigger relief  in terms of zero rating of service tax and infrastructure status have been left out,” Dubey added.
 
Meanwhile the government reduced budgetary allocation to the civil aviation ministry by 17% to Rs 4,417 crore from R ,360.95 crore the previous year. Of that amount, state run airlines got a grant of Rs 2,065 crore- significantly lower than their demand of Rs 4,300 crore.