Union Budget 2024-25 Expectations from Civil Aviation Industry
Tax Rationalisation and Ease of Business
As Finance Minister Nirmala Sitharaman gears up to unveil the Union Budget 2024-25, the civil aviation sector is urgently seeking policy changes that will streamline business operations and alleviate tax burdens. The Association of Private Airport Operators, representing major players like GMR and Adani, has promptly submitted a series of recommendations to the government.
User Development Fee Clarifications
One crucial request is for clear guidelines on the tax treatment of the user development fee charged by airlines to passengers. The operators argue that airlines, acting merely as collection agents, should not be required to deduct tax at source on these fees, as it ties up significant working capital. This demand underscores the industry’s need for transparency and clear regulations.
Increase in Duty-Free Allowance
The association has put forward a proposal to double the duty-free shopping allowances from ₹50,000 to ₹100,000 for purchases from duty-free shops in India. This adjustment, in line with inflation rates, since the limit was set in 2016, not only boosts foreign earnings but also instills a sense of optimism about the industry’s future. Additionally, they suggest allowing duty-free shops to sell domestic Indian liquor tax-free at departure lounges, treating it as export.
Challenges with Aviation Turbine Fuel (ATF)
A significant concern for airlines remains the high cost of aviation turbine fuel (ATF), which constitutes nearly 40% of their operating expenses in India, compared to the global average of 20-25%. Despite a recent 6.5% reduction in ATF prices, the current rates are still substantially higher than pre-pandemic levels, affecting profitability.
Taxation on Aircraft Imports
Private aircraft operators seek clarity on the 2.5% import duty imposed on aircraft used for non-scheduled operations. They hope for a repeal of this tax, which has been in effect for about 15 years.
Boosting Domestic Aircraft Manufacturing
In anticipation of airline sector growth, aircraft and engine component manufacturing companies are optimistic about incentives to enhance the domestic supply chain. They advocate for production-linked incentives (PLI) for aircraft components, focusing on high in-country value addition. Additionally, they propose tax incentives for aerospace research and development (R&D) to foster innovation.
Emerging Drone Industry
The drone industry seeks substantial policy support to establish India as a global drone hub by 2030. Key demands include expanding the PLI scheme, establishing dedicated R&D funds, creating common testing facilities for larger drone systems, and developing a certification framework for Beyond Visual Line of Sight (BVLOS) drones.
Uniform GST Rate and Subsidies for Drones
Industry leaders propose a uniform GST rate of 5% on drones, components, and parts to encourage wider adoption of drones, especially in sectors like agriculture. They also seek subsidies from central and state governments for drone service providers, particularly in agricultural applications such as drone spraying.
Current Taxation Disparities
Currently, agricultural spray drones are taxed at 5%, while other drones attract an 18% GST rate, creating a disparity that stakeholders hope to address through policy reforms.
Conclusion
With these expectations and proposals, the civil aviation and drone industries are looking forward to supportive measures in the upcoming Union Budget, which will aim to foster growth, reduce operational costs, and promote innovation in these critical sectors.
