Govt for tax incentives to airlines, regional connectivity

Unveiling the much-awaited draft civil aviation policy, the government today proposed tax incentives for airlines, maintenance and repair works of aircrafts besides mooting 2 per cent levy on all air tickets to fund regional connectivity scheme.
In a significant move, the Civil Aviation Ministry has pitched for over 50 per cent Foreign Direct Investment (FDI) in domestic carriers in case the open skies policy is implemented.
Under open skies policy, overseas airlines can operate unlimited number of flights into and out of India.
At present FDI limit is 49 per cent.
Presenting the revised draft national aviation policy here, Civil Aviation Secretary R N Choubey said the ministry has proposed 2 per cent levy on all domestic and international tickets for regional connectivity scheme.

"The government expects about Rs 1,500 crore annually from charging 2 per cent levy " Choubey added.

The policy has mooted various measures to boost regional connectivity including setting up of no-frills airports and providing viability gap funding for airlines.
Another proposal is to cap fare at Rs 2,500 for one-hour flight under regional connectivity scheme.
To make MRO (Maintenance Repair, Overhaul) cheaper, the government has proposed to exempt such activities from service tax net and not levy any VAT.
However, the government has decided to seek more comments from stakeholders before taking a final call on 5/20 norms -- whereby local airlines can fly overseas only when they have five years operational experience and at least a fleet of 20 aircraft.

The policy has now mooted three options -- abolish the norm completely, continue with it or link overseas flying rights with domestic flying credits.
The draft policy would be put up for comments from stakeholders for three weeks. To ensure increased regional connectivity, the policy has
also proposed various concessions such as state governments providing free land and lowering the Valued Added Tax (VAT) on ATF to 1 per cent or less.
There would be no service tax on tickets under the Regional Connectivity Scheme (RCS) apart from service tax exemption for scheduled commuter airlines taking jet fuel from RCS airports.

For regional connectivity, 80 per cent of the viability gap funding would be shared by the Centre and rest by concerned states.
Choubey said that no-frill airports are being proposed to be set up at a cost of Rs 50 crore as part of efforts to boost regional air connectivity.
The revised policy has floated the concept of Scheduled Commuter Airlines (SCAs) which would have relaxed norms and those entities would not liable to pay airport charges for operations under RCS.
SCAs can be set up with a minimum paid up capital of Rs 2 crore and their aircraft would have a capacity of 100 seats or less. These entities can also enter into code share with other airlines.

Seeking to provide a more friendly Maintenance, Repair and Overhaul (MRO) regime in the domestic market, the ministry has proposed exemption from service tax for those activities and simplified customs clearance procedures.
"MRO, ground handling, cargo and ATF infrastructure co-located at an airport will also get the benefit of infrastructure sector, with benefits under Section 80-IA of Income Tax Act," Choubey said.
Various measures have been mooted for rationalisation under route dispersal guidelines as well as for liberalised bilateral rights framework.
Domestic carriers would be allowed to enter into code share agreements with foreign airlines without prior approvals.
"A review will be carried out after five years to consider the requirement of further liberalisation in code share agreements and to drop the requirement of reciprocity," Choubey said.

Civil Aviation Minister Ashok Gajapathi Raju and Minister of State for Civil Aviation Mahesh Sharma were also present.