India's new government is proposing to raise the ceiling on foreign direct investment (FDI) in the country's civil aviation sector to 49% from 40%, as airlines seek funds to expand. However, a proposal to impose a tax of more than 40% on leases of aircraft is sparking concern.

Finance minister P Chidambaram says there is an "urgent need for infusing huge amounts of capital" in the civil aviation sector and foreign investment "has the potential to add a competitive edge".

Private airlines welcome the FDI announcement, but the plan to impose high taxes on leases is causing concern. Airlines are exempt from such high tax levels, but Chidambaram says this exemption and others "have outlived their utility". Private airlines as well as the state-owned carriers rely on operating leases and new low-fare airlines are also seeking leased aircraft.

Civil aviation minister Praful Patel says an appeal will be made for the tax plan to be reconsidered.


Source: Airline Business