BUDGET - BMR Advisors

significant cost efficiencies (both in set-up and operationsphase).To provide a much needed boost to overall growth of the aviationsector and ensure the cost-competitiveness of MRO facilities inIndia, the Government may consider extending a 5 year incometax holiday for MRO facilities constructed in India.Service taxRemoval of service tax on international travel in firstclass and business classFrom the year 2006, service tax is being levied on internationaltravel via air, in all classes other than Economy class. Sincesuch airlines do not have an output excise or service tax liability,this levy results in an unnecessary addition to the costs of theairline. Removal of levy of service tax on this category is thusexpected to be reviewed.Further, it is important to take note of International Civil AviationOrganization (ICAO), an agency of the United Nations whichcodifies the principles and techniques of international airnavigation and fosters the planning and development ofinternational air transport to ensure safe and orderly growth.Since the early 1950’s ICAO has had policies and guidance formember States on the taxation of international air transport andin February 1999 has adopted the consolidation of the previousfour separate Council Resolutions into a single resolutionrecorded in Doc 8632. The policy of ICAO on taxation asevidenced in the Doc 8632 do not support taxes on the sale anduse of international air transport. India is an importantconstituent of ICAO and since the policies are based on the tenetof reciprocity, India should uphold its commitment to thisinternational convention and remove the tax.Removal of service tax on Airport servicesFrom the year 2004, service tax is being levied on servicesprovided by an Airport Authority in connection with variousservices provided by it to the airlines. The quantum of servicetax so charged, not being completely creditable, adds on to thecosts of the airlines significantly and thus adversely affects thecompetitiveness of the Indian aviation sector. Removal of levy ofservice tax on this category is thus expected to be reviewed.indiaBUDGET200845