True ‘Make in India’ in Aviation Will Not be Possible Without ‘Moratorium on All Taxes’
|Mumbai-based aircraft Global 6000 (400h a year)||Dubai-based aircraft Global 6000 (400h a year)||Difference per hour in the costs between Mumbai-and Dubai-based aircrafts|
|Per hour on fuel ()||90,000||66000|
|Per hour effect of 2.5% custom duty calculated over 10 years ()||55,000||Nil|
|Per hour effect of 15% service tax calculated over 10 years ()||75,000||Nil|
|Total effect ()||2,20,000||66,000||1,54,000|
Would you ever think of sending your Samsung washing machine to Korea for servicing? Or let’s say it had a service centre in one of your neighbouring countries. Would you find it acceptable to have it serviced there, bear the shipping costs and a mounting load of laundry until it comes back? Ofcourse, not!
Now replace the word ‘washing machines’ with ‘aircraft’. While the previous discussion was hypothetical, the same cannot be said of aircraft. For aircraft major inspections or overhauls, or paint or refurbishment, Indian aviation operators generally fly their aircraft out to other countries where the cost of maintenance is cheaper as a result of lower taxes. While you do not send your washing machine to a foreign country because of time restrictions, in the case of aircraft, time is of no constraint as the aircraft just takes off to the foreign destination for maintenance or even for business. It is the Government’s economic function to create favourable competitive conditions for industries, especially those where the competition from the neighbouring countries can easily be employed or effected. Some of these industries include software development, consultancy, aviation, etc.
GOVERNMENT COULD DO TREMENDOUS GOOD BY DECLARING A MORATORIUM ON TAXES IN AVIATION FOR A FEW YEARS TILL WE CATCH UP ON THE LOST POTENTIAL. THE REVENUES IT EARNS FROM THE BOOST IN BUSINESS OR THE NATIONAL GROWTH THAT THE INDUSTRY WOULD BRING IN, WOULD FAR OFF-SET THE MUCH NEEDED TAX BREAK.
Even in charter flying, it is at times actually cheaper to hire an aircraft from a neighbouring country, than from India. For instance, the costs to fly an aircraft based in Dubai to Mumbai, pick up passengers for a one way trip to London and then return to Dubai is less than an aircraft based in Mumbai to fly to London and back. Have we not heard Indian MRO Companies setting up bases abroad or foreign airlines coming into India and taking Indian passengers to a third country. A country where the employment index or wages are so low, and which sits pretty on the world map as an ideal location for a major aviation hub, should be able to capture not only the Indian market but also the market from abroad. Instead, we continue to loose business to foreign companies, that too, in the age of ‘Make in India’. Does all this not appear ‘absurd’ or ‘traitorous’. A comparison of the unfavourable conditions/inferior economic conditions under which an aircraft in India operates vis a vis an aircraft parked in Dubai, is laid out in the cost comparison table (above).
An aircraft’s operating cost is higher in Mumbai than that in Dubai because 1,54,000 per hour more, accounts towards national taxes (the high ownership costs due to Rupee loan being 8 to 9 per cent higher than the dollar loan has not even been considered. Many a times, in India, the ownership costs alone, make the business model of an airline or an aircraft operator, unviable as it is impossible to beat the ownership costs of foreign airlines/aircraft operators). It would be wise for the exchequer to weigh the benefits accruing out of such high taxes/rate of interests against stifling of the GDP due to loss of business, in favour of competitor countries.
It is now the task of regulators and national leadership, to deal with this threat and harness the potential that this industry has in India. Government could do tremendous good by declaring a moratorium on taxes in aviation for a few years till we catch up on the lost potential. The revenues it earns from the boost in business or the national growth that the industry would bring in, would far off-set the much needed tax break. The multiplier effect of business aviation may be measured in terms of its direct and indirect impact on nation building. The direct impact covers operational revenues in terms of fuel, airport usage, insurance, direct employment, MROs, etc. The indirect impact refers to the economic impact from the spurt in other activities boosted by the presence of business aviation, like, remote area connectivity, industrialisation, tourism and pilgrimage, disaster management and life saving missions, policing and internal security, survey and exploration, agriculture, aerial photography, power line installation, transport heavy equipment to inaccessible areas, sports, etc.
The Government also needs to encourage leasing into India by relaxing the policies and inviting/encouraging foreign leasing companies to open shop into India. Alternatively, arranging for loans at low ROIs for aviation is another way that the Government can help. It may be a counter productive move for the banking sector of the country, but the growth of aviation market will have a multiplier effect on the economy and nation building.
Just like our washing machines, we’d like our airplanes also to be serviced within our country!
—The writer is CEO of India Flysafe Aviation Limited and Vice President of BAOA