India is currently the ninth largest civil aviation market in the world with its domestic air passenger traffic having almost doubled in the past 6 six years. The total passenger traffic now stands at a whopping 224 million in the year 2016 and is only expected to grow multifold. It is projected that by 2020, India will become the third largest civil aviation market on the planet.
The last Budget of 2016-17 did not announce significant policy changes for the civil aviation industry and focused on the need for creating infrastructure for regional airline connectivity in India. The key policy changes announced for the civil aviation sector were :
- (a) Revival of Unserved and Underserved Airports : The Government promised to draw up an action plan for revival of unserved and underserved airports. 160 airports and air strips were identified for revival at an indicative cost of 50 crores to 100 crores each. The Central Government assured to partner with the State Governments for development of some of these airports for increase in regional connectivity. The Budget also stated that the Airport Authority of India (“AAI”) would develop 10 of the 25 non-functional air strips.
- (b) Exemption from duty for Maintenance, repair and overhaul (“MRO”) of aircrafts: The budget of 2016-17 exempted tools and tool kits from basic customs duty and excise duty when procured MRO of aircraft subject to a certification by the Directorate General of Civil Aviation.
- (c) Removal of restriction : Restriction of 1 year for utilization of duty free parts for MRO was removed.
- (d) MRO of Foreign Aircrafts : Restriction of 1 year for utilization of duty free parts for MRO was removed.
- (e) Indian Customs Single Window Project : The budget stated that significant progress had been made to implement such a project at major airports pursuant to the announcement made in the budget of 2015-16.
- (f) Fuel Surcharge : Excise duty on Aviation Turbine Fuel (“ATF”) was increased from 8% to 14%. However, the duty for supply to aircraft under the Regional Connectivity Scheme remained 8%.
- (g) Exemption relating to Construction of Airport : The Bill announced that no service tax would be levied or collected for the period between April 1, 2015 and February 29, 2016 in respect of services provided by way of construction, erection, commission or installation of original works pertaining to an airport under a contract entered into prior to March 1, 2015 subject prescribed conditions.
- (h) Deductions for Infrastructural Facilities : Section 35AD of the IT Act was amended to allow deduction of capital expenditure incurred for developing airports.
- (i) Exemptions for Infrastructural Facilities : Tax holiday under Section 80IA of the IT Act was extended till March 31, 2017
Taking the Assurances Forward
- (a) Regional Connectivity and Revamping of Airports : The Ministry of Civil Aviation brought forth the ‘UDAN’ (Ude Desh ka Aam Naagrik) Regional Connectivity Scheme (RCS) which, inter alia, provides funds for airport infrastructure development in regional areas and tax incentives to private airlines for operating on those routes.
The AAI is currently vigorously implementing the regional connectivity plan and has received proposals to revive 65 airports. The Durgapur International Airport, amongst others, is one of the airports that has been made operational and revamped for better connectivity. Similarly, airports at Ajmer, Jammu, Guwahati, Agartala, Pakyong and Port Blair are being expanded and improved.
One of such effort is the overhaul of the Netaji Subhas Chandra Bose International Airport, Kolkata which can now handle 25 million passengers annually – a vast improvement from the previous capacity of 4.8 million a year.
- (b) Single Window Customs Clearance : The Central Board of Excise and Customs (CBEC) has extended 24X 7 customs to 19 air cargo complexes. CBEC is also said to have set up ‘Central Customs Clearance Facilitation Committees’ at major airports for faster clearance of goods.
Budget 2017-18 – Expectations
The forthcoming Budget is expected to give impetus to both development of airport infrastructure which would include revival of the unserved or underserved airports as well as encouraging aeronautical manufacturing in India being a “Make in India” initiative.
The Budget should also look into the construction of greenfield airports which seems to be the only plausible solution for improvement of airport infrastructure in metros. Accordingly, fiscal benefits in the form of tax reliefs and allocation of funds for greenfield projects is anticipated from the Budget.
On the tax front, excise duty on aviation turbine fuel (ATF), or jet fuel should be brought down to previous rate of 8% from 14%. This will shield the airlines from a hike in jet fuel prices and ensure that the cost is not passed on to the customers.
Tax holiday under Section 80IA should be specifically extended to infrastructure facilities pertaining to fuel facility, ground handling, cargo facility etc which are required for smooth functioning of airports.
Considering that there is surge of passengers travelling by air on both international and the domestic routes, this sector requires the much needed attention in the forthcoming Budget.