The Hindu Business Line : Leasing of aircraft could get dearer from today

THE leasing of aircraft and engines could become dearer from Saturday with the six-month exemption period provided by the Finance Minister, Mr P. Chidambaram on payment of withholding tax on such leasing ending today.

The decision to impose such a tax on import of aircraft and aircraft engines was mooted by Mr Chidambaram in the Union Budget of 2004-05. However, after representation from industry, the Government pushed back the imposition till September 30.

There was no official word on whether the exemption has been extended or not.

When asked informally by newspersons about this, the Finance Minister said that any extension would have required legal amendments. "As of now, I have no pending proposals before me," he said.

Mr Chidambaram, however, indicated that even lease agreements entered on September 30 would be eligible for the withholding tax exemption.

The Ministry of Civil Aviation, the airline industry, and industry bodies such as the CII have made representations to the Government to get an extension.

Sources said that the Ministry of Civil Aviation had not got any official communication on the status of the tax though the Minister for Civil Aviation, Mr Praful Patel, had written to the Finance Minister on this issue about three weeks back.

Both private and State-owned airlines are looking to lease aircraft to keep pace with the growth in the domestic aviation market. Indian Airlines and Air India plan to lease aircraft, including Airbus A-320 and Boeing 777 aircraft, to meet the market demand till the aircraft that they are to purchase arrive.Sources indicated that the quantum of the financial impact on airlines would depend on the residential status of the lessor and the provisions of the double taxation avoidance agreement between India and the country from where the aircraft was being imported.

However, the rate of tax could range up to 40 per cent plus applicable surcharge, they said.

"The cost of leasing for airlines could be escalated by this factor, which would adversely affect the economics of the leasing and the fleet expansion programme through leasing."

Industry sources estimated that an airline leasing a new Boeing 737 or Airbus A-320 aircraft could have to bear an additional monthly expenditure of about Rs 30 lakh on account of the tax.

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