FIA statement on Union Budget 2007-08

Statement by Mr V Thulasidas, Chairman, Federation of Indian Airlines (FIA) & Chairman & Managing Director, Air India Limited:

"The Airline industry had sought a rationalization of taxes on ATF for the domestic carriers. The industry had hoped that Aviation fuel altogether could be given a 'declared goods' status, thereby granting a uniform 4% sales tax across India. Fuel accounts for close to 40% of the total operating costs for airlines in India and the price of ATF for domestic operations are over 60% higher than international benchmarks.

The move to extend the benefit of sales tax on ATF to Regional Jets is a positive one which will facilitate continued growth of the domestic aviation sector. The announcement thereby removes the disparity in the fuel sales tax between turbo props and regional jets, and is in line with the FIA recommendation.

There is also a welcome thrust on investments and incentives for tourism and tourism infrastructure sectors, which should have a positive impact on growth of India's aviation sector. The budget has allocated funds of Rs 520 crores for development of tourism infrastructure in the country. This, coupled with the income tax holiday for 2, 3 & 4 star hotels will drive growth for the tourism industry. Aviation and Airlines will derive benefit from growth in tourism in India.

There is another critical recommendation of the FIA with regard to continuation of exemption on withholding tax on leased aircraft under section 10(15A). The non availability of this exemption we believe, will significantly increase the fleet acquisition costs of Indian carriers, particularly in a market where demand for aircrafts is greater than the supply. We hope that the provision can be included in the Finance bill 2007-08".

In view of the acquisition plan of most airlines, we would have expected the exemption on withholding tax on interest on loans taken from foreign financial institutions to be reinstated. Similarly, the fringe benefit tax levied on hotel accommodation provided to the crew and passengers by airlines should have been abolished. A similar decision should have been taken on the free and concessional passages provided to staff instead of leave travel concession in the airline industry. Another request for abolishing of Service tax on First and Business Class travel seem to have been not considered.