Rationalise taxes on aviation sector, ease FDI norms: ASSOCHAM

"The government allows FDI of up to 49 per cent in Indian carriers. However, foreign airlines are not allowed to invest directly or indirectly in domestic carriers, a rule the government should scrap for healthy growth of civil aviation sector," ASSOCHAM Secretary General D S Rawat said.

The statement could be music to the ears of Kingfisher owner Vijay Mallya who has himself been raising this demand for several months now. However, other carriers like Jet Airways have been opposed to it.

Asking the government to formulate a new civil aviation policy, Rawat said in a report that the aviation industry has all ingredients to grow but airlines were facing huge losses as over one-third of operating costs were due to the price of aviation turbine fuel which was heavily taxed.

To keep pace with the booming passenger and cargo traffic, the industry needs an investment of Rs 1.5 lakh crore over the next 15 years, the ASSOCHAM official said.

"But major private and government-owned airlines like Air India, Jet Airways, Kingfisher Airlines and SpiceJet have flown into debt turbulence due to elevated fuel costs and fierce price wars.

"Airlines could suffer losses worth about Rs 15,000 crore in the current financial year with Air India alone likely to account for more than half of it," Rawat said.

The airline industry, he said, required fresh funds and there would be a question mark on their survival if they are unable to raise them.

Rising crude prices, depreciating rupee value and cut-throat competition have eroded airlines' ability to raise fares despite passenger growth of about 19 per cent this year, the industry body said and asked the government to reduce the airport charges and streamline ground handling operations.

Airlines had to pay 10.3 per cent as service tax on maintenance, repair and overhaul (MRO) facilities.

"There is no import duty for foreign MRO companies from overseas suppliers but domestic players have to pay import duty of 30 to 40 per cent. In addition, there is 18.5 per cent minimum alternate tax on aerospace special economic zones which are coming up at Nagpur, Belgaum and Hyderabad," he said.

In 2010-11, passenger traffic totalled 14.2 crore - a trend which is growing by a conservative rate of 10 per cent and is expected to touch a figure of 54 crore by 2025. At the same time, cargo traffic is expected to touch 90 lakh tonnes from 24 lakh tonnes in the last financial year.

India's scheduled airlines have 430 planes now. ASSOCHAM said this figure is likely to go up to 1,500 by 2025. Besides, the general aviation comprises of 700 small planes and 300 helicopters. In addition, the business jet fleet has about 140 aircraft. This was expected to grow to 2,500 aircraft and 900 helicopters.

"India's unique geographical position offers an opportunity to become a global hub for international airlines as well," said Rawat.

The increase in traffic and aircraft fleet would require significant investments in terms of expanding and upgrading existing infrastructure facilities besides creating new ones.

"For that, a right policy mix, an encouraging tax structure and a healthy regulatory mechanism are essential," Rawat said.