GIFT to Gujarat: Can the state become the next Ireland of aircraft leasing?

Companies already enjoy a 10-year tax holiday on income and profit in GIFT. Sitharaman's proposal to not tax capital gains incomes could further sweeten the deal for those wanting to exit Ireland

In what could be a big boost to aircraft leasing operations in India, finance minister Nirmala Sitharaman announced a tax holiday for companies looking to enter the aircraft leasing business. There are two things that become apparent while reading between the lines. Firstly, the aircraft leasing company would have to be situated at Gujarat International Finance Tec City (GIFT) in the state. Secondly, the tax holiday would be available only on capital gains income of the leasing company.

Aircraft leasing has been the preserve of a handful of nations, pre-dominantly Ireland. At 12.5 per cent, the country has some of the lowest corporate tax rates in the world. A Ficci-KPMG report noted that there are eight aircraft leasing companies around the world with assets of $10 billion. Most of these were located in Ireland. Presumably, it costs less to run the leasing business in the country.

Sitharaman’s announcement could effectively kickstart a sunshine industry which has been non-existent in India and make it attractive for aircraft leasing companies to move from places like Ireland and Hong Kong to Gujarat. Companies already enjoy a 10-year tax holiday on their incomes and profits in GIFT. Sitharaman’s proposal to not tax capital gains incomes could further sweeten the deal for those wanting to move out of Ireland. Despite the low corporate tax rates, aircraft leasing companies (and others) have to pay a 33 per cent tax on capital gains in Ireland.

Reacting to the announcement, Mr. Tapan Ray, MD & Group CEO of GIFT City said, “The tax announcement would help in attracting global players in the fund business, aircraft leasing & financing business and offshore investment banking sector to set up their base in GIFT IFSC.”

Sitharaman’s announcement on Monday is the culmination of a series of events that have been unfolding since 2019 to create an aircraft leasing ecosystem in GIFT. In January 2019, a working group in the ministry of civil aviation published a report titled ‘Project Rupee Raftar: Development of Aircraft Financing & Leasing in India.’ The ministry had specifically mentioned that it wanted to set up the aircraft financing and leasing ecosystem only at GIFT. In July 2019, Sitharaman in her budget speech made the first reference to this project saying that the “time was ripe for India to enter into aircraft financing and leasing activities from India shores.” She specified that this ecosystem would be setup at GIFT. Not much progress was made on the ground for another year. Then in October 2020, in a major move, the Modi government reclassified aircraft leasing as a financial product under the International Financial Services Centres Authority Act, 2019. With this tweak, no other laws in the country would apply to companies which dealt with aircraft, helicopter and engine leasing located at GIFT. By December the International Financial Services Centres Authority (IFSC) had uploaded draft regulations for aircraft leasing at GIFT for public comments. According to the rules any company which has a minimum capital of $200000 can apply for registration as a aircraft lessor at GIFT.

A 2014 report by Deloitte on Ireland’s aircraft leasing industry noted that the country had several distinct advantages that led it becoming the mecca of aircraft financiers. In addition to low corporation taxes and other generous tax concessions, Ireland had a high concentration of world class lease arrangers, asset marketeers and legal heads. The report also noted “Irish government support of the industry” and “pro-business regulatory regime” as reasons for Ireland emerging as the hub of aircraft finance. With her tax holiday budget announcements, Sitharaman may have moved one step closer to doing what the Irish have been doing so well over the decades. And in the process, set the ball rolling for Gujarat to be the next Ireland of the aircraft leasing and finance business.