Finance minister aims to lift exemption on foreign aircraft and engines in September

Airlines in India are reacting with outrage over a plan by the country's new government to impose a tax of over 40% on leases of aircraft and engines.

The proposal is included in finance minister P Chidambaram's 2004-5 budget, which was presented last week. Airlines are now exempt from a 48% tax when leasing aircraft and engines, but Chidambaram says this exemption and others "have outlived their utility".

"Any payment made by an Indian company to acquire an aircraft or an aircraft engine on lease from a foreign state or a foreign enterprise will not be exempt from tax," he said in his budget speech. "These exemptions will cease from 1 September."

India's privately owned airlines, as well as the state-owned carriers, have traditionally relied heavilyon operating leases, and most have been seeking to expand their fleets as passenger demand grows within the country. Several new low-fare airlines are also seeking to start operating and plan to lease their aircraft.

Chidambaram's announcement immediately led to criticism from India's airlines. The Press Trust of India quotes civil aviation minister Praful Patel as saying an appeal will be made for the tax plan to be reconsidered.

"We will request the finance minister to reconsider the withdrawal of tax exemption on leasing of aircraft as it would be a big setback, especially for Air India and Indian Airlines," he says.

State-owned Air India and Indian Airlines are both seeking to lease many new aircraft as requests for approval to purchase new widebodies and narrowbodies from Airbus and Boeing have long been held up at government levels.



Source: Flight International