It’s June 2019, and we have a new government which means business, and is all set to make a correction for the growth of the economy. The mandate for the government is overwhelming, and there is a golden chance for it to take bold steps to spur the growth of one of the most neglected, but a very vital industry in the country, that is, the general and business aviation (G&BA) industry.
Indeed, it is apparent to most of us, that one of the main pillars of the effective election campaign of the present government rested on this very industry. It provided aircraft and helicopters to their leaders to reach out to the electorate, far and wide, and in remote corners of the country, to spread their message effectively.
Can you imagine what may have been the outcome of the elections if the political leaders had not been able to address multiple rallies in the country every day, and were restricted to mobility by only commercial airlines, railways or by road? However, the moot point is that G&BA was effectively used as force multiplier in this election by all parties to further their reach to the electorate. This itself should put to rest the age-old myth of business aviation being a luxury toy for the rich and powerful, with no use for the larger good of the society. Besides being used by political leaders, it is also used by industry captains to travel safely to remote areas and factories, for furthering the growth of their businesses. The time saved by them adds directly to the growth of the economy, thereby boosting the GDP.
G&BA is also used for air ambulances to transport patients, and organs for life saving measure. A vast section of the population uses the services of helicopters to visit inaccessible places of religious importance, such as Char Dham Yatra, Amarnath yatra and Mata Vaishno Devi.
With this in mind, will the present government wake up to the importance of this crucial industry and rectify some of the issues that have been negatively affecting our growth over the years? This article focuses only the issues that are impacted by the fiscal policy in place, and the high and illogical taxation, including GST issues. The operational and infrastructure issues are not covered here. We hope this article gets the attention of Minister of Finance Nirmala Seetharaman, and is considered seriously before she presents the forthcoming Union budget in the coming month. These issues are not new, but are listed once again for the consideration of the policy makers:
GST on aircraft purchase:
At present, there is GST on 5 percent (with ITC) on the purchase of a business aircraft in the commercial category (NSOP), and 28 percent of the aircraft is purchased in the non-commercial (private) category. This category also attracts another 3 percent as cess, and the entire 31 percent does not have an ITC, unless it is proved that the aircraft was used only for furtherance of business, for which there is no clear cut guideline laid out, and the onus lies on the user to prove it. This opens the entire process to subjectivity in the hands of the tax authorities.
Recommendation: The applicability of 28 percent is totally flawed, with the assumption that aircraft purchased in non-commercial category is a ‘Sin Good’, meant only for pleasure and personal gratification of the user. Most non-commercial aircraft are bought by companies for the use of their senior management to travel to remote and inaccessible plants and factories for the furtherance of business, thereby allowing flexibility of schedule and time saving.
The fact that they do not want to operate under an NSOP, is only because they have captive use of it, and do not want the same oversight of DGCA that is applicable for aircraft carrying fare paying passengers, which includes commercial airliners or NSOP. It is recommended that the aircraft bought by companies for non-commercial use (wrongly addressed as ‘private’ use by the authorities) be recognised as a legitimate requirement of companies. In the United States, the government gives several tax-breaks and bonus depreciation to companies which buy aircraft to improve growth and productivity.
This category needs to have the same level of GST applicability as for NSOP, that is 5 percent with ITC. The government may consider adding another category of purchase, called ‘non-commercial private’ use, as compared to ‘non-commercial business use’, as given out above. Non-commercial private users may have applicability of higher GST at 18 percent, or even 28 percent, and identifies the user as a person who requires the aircraft for purely personal use and leisure. To sum up, we need the following categories for GST applicability:
GST on aircraft charters: Presently, the GST on private aircraft charters is at 18 percent, as compared to 12 percent for business class travel in a commercial airliner. The differentiation is not understood. This needs to be at par with travel in business class by any fare paying passenger, and it should be irrelevant if the travel is by a private aircraft or First/Business class in a commercial airliner. Due to this high GST, the country is losing valuable foreign exchange as most users tend to use aircraft from overseas charter companies, which are able to provide private aircraft charters from nearby countries, without any GST, thereby making them cheaper. The Indian charter companies need a level-playing ground, as their growth will add to the GDP, and generate the much spoken about jobs.
Recommendation: We strongly recommend that aircraft charters should attract a similar GST as travel by First/Business class in a commercial airliner, that is 12 percent. Where tickets are being sold as individual seats, such as religious charters, it should attract only 5 percent GST, the same as for economy class passengers. No GST should be applicable for life-saving flights, such as air ambulances and transfer of critical organs.
Maintenance, repair and overhaul: The fact that this part of the industry has been neglected for so long, even after so much has been spoken about it, defies all logic. An industry which is worth about $1 billion presently, sends 90 percent of its aircraft overseas to countries such as Sri Lanka, Malaysia and Singapore for major maintenance due the current 18 percent GST on services and spares which it attracts for services in India. With another 1000 aircraft which will be added to the commercial fleet in the next 4-5 years, this can grow into a $2 billion plus industry.
Recommendation: If the government gives a GST holiday to this industry for a period of 2-3 years, the growth can be phenomenal, and the number of jobs it can generate can be tremendous. Besides this, airport operators should stop charging royalty to MRO services being offered from their airport, as these are not ground handling services and needs to be delinked from it. This has been brought out in so many forums and industry seminars to the policy makers in the past five years, that I have almost lost count of it. It is time for the present government to address this issue. The MRO Association of India has already declared that this industry is on the verge of shutting down, unless the government makes some drastic corrections. Need we say more!
I am not addressing the issues of high rates of ATF or airport charges here as these are issues that affect the commercial airline industry more than it affects us. Any relief in this will, of course, help the G&BA industry too, and will be welcome. If the present government can address only the above three issues in the coming months, I am confident that it will kick-start the entire industry, making way for a sustained growth.
For an industry that has been stagnant from an average negative growth to a best of 2-3 percent growth in the past five years, you don’t need to be a mathematician to understand that 10-12 percent sustained growth, at reduced taxes, will add much more to the government revenues than it theoretically does at present. Besides this, the number of jobs created in the direct and indirect employment zone will have a cascading effect on the entire economy. Hopefully, by the time the 2024 elections come up, there will be many more aircraft and helicopters for the political parties to charter and use, in place of the limited resources that were available this time!
Rohit Kapur is the Managing Director of Arrow Aircraft Sales and Charters Private Limited, and the former and founder president of Business Aircraft Operators Association.
First Published: IST