Tax­a­tion

‘Make in In­dia’ will not be Pos­si­ble...

SP's Aviation - - TABLE OF CONTENTS - —The writer is CEO of In­dia Flysafe Avi­a­tion Limited and Vice Pres­i­dent of BAOA

BY COLONEL SAN­JAY JULKA (RETD)

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.

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!

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.

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