Union Budget 2024: Streamlined tax to boost aviation sector

The nation’s carriers are poised to expand their fleets. Representation Pic

The Union government has announced a uniform Integrated Goods and Services Tax (IGST) rate of five per cent on all aircraft and aircraft engine parts. This regulation, set to streamline procurement processes for domestic and international airlines, marks a significant step towards reducing operational costs.

The budgetary allocation for the Civil Aviation Ministry has been reduced to Rs 2,357.14 crore for the current fiscal. Meanwhile, the regional air connectivity scheme is set to receive Rs 502 crore during the same period. In the revised budgetary allocation for 2023-24, the amount for the civil aviation ministry was R2,922.12 crore.

According to the Economic Survey of India, the nations carriers are poised to expand their fleets substantially, with orders already in place for over 1,500 aircraft. This expansion is driven by a consistent year-on-year growth rate of 20 per cent, underscoring the need for streamlined tax policies.

According to the documents, the ministry will receive an allocation of Rs 2,357.14 crore. The budget for the regional air connectivity scheme has been reduced to R502 crore from R850 crore in the revised allocation for 2023-24. This amount will be used for the revival of 22 airports, the commencement of 124 RCS routes and Viability Gap Funding for North East Connectivity.

Similarly, for 2024-25, the allocations for the Directorate General of Civil Aviation (DGCA) and the Bureau of Civil Aviation Security (BCAS) have been reduced to R302.64 crore and R89 crore, respectively.

Rs 57.14 crore has been allocated for the Hotel Corporation of India Ltd to meet its statutory and other obligations under the ministry. An amount of R85 crore has been allocated this fiscal for providing medical benefits to retired employees of Air India. In 2023-24, the amount stood at R51 crore.

"The introduction of a uniform five per cent IGST rate on maintenance, repair and overhaul (MRO) items is a major boost for the aviation sector. Previously, the varying GST rates of five per cent, 12 per cent, 18 per cent and 28 per cent on aircraft components created challenges. This new policy eliminates these disparities, simplifies the tax structure and fosters growth in the MRO sector," said Civil Aviation Minister Kinjarapu Ram Mohan Naidu.

"The implementation of a consistent five per cent IGST across aircraft and engine parts is a game-changer," remarked a senior official from the Ministry of Civil Aviation. "It not only simplifies the tax structure but also enhances cost-efficiency for airlines, potentially leading to competitive pricing strategies that benefit consumers," the official said.

"This move is expected to lead to potential cost savings for airlines, which could be passed on to consumers through competitive pricing strategies." said an industry analyst.

According to the ESI, Indian carriers are set to significantly expand their fleets with orders for over 1,500 aircraft currently in place. This expansion aims to meet the growing demand for air travel, driven by a robust year-on-year growth rate of 20 per cent. Central to the governments aviation strategy is the UDAN (Ude Desh ka Aam Nagrik) scheme, which aims to enhance regional connectivity by developing tier 2 and tier 3 airports across the country. This initiative seeks to integrate remote and under-served regions into the national aviation network. By doing so, it promises to stimulate economic growth and provide affordable air travel options to a wider segment of the population.

Industry experts have welcomed the move, citing its potential to attract further investment into Indias aviation infrastructure. "A predictable tax regime is crucial for fostering a conducive business environment," noted an industry analyst.