The aviation maintenance, repair and overhaul or MRO industry has sought exemption from GST and has requested the government to either abolish 18 per cent GST levied on the sector or impose customs duty on aircraft that get serviced out of India to create a level playing field.
The MRO industry claims that the present GST rate makes servicing aircraft in India a costlier affair compared to abroad. The industry is also planning to approach the finance ministry to discuss the issue.
“Zero rating for service tax/GST to Indian aviation MRO industry; or introduce customs duties equivalent to 25% to the value of the import of aviation MRO services,” the industry said.
The industry representatives said GST implementation has been detrimental to the sector which had turned competitive after receiving exemption from customs duty on import of spare parts and abolition of VAT by Maharashtra (housing 80% of MRO units in India).
“The airlines cannot get a refund for GST paid to us because there is no provision for refund available on economy class seats, which form a substantial part of the airline capacity in India,” said Bharat Malkani, Vice President of MRO Association of India. “Under the service tax regime, airlines used to get refund, thus keeping cost of servicing low. Also, pre-GST, we paid zero VAT on spares in Maharashtra and service tax on labour. Post-GST, it is 18% on combination of spares and labour. However, imports are not taxed at all.”
Malkani further stated that foreign MRO units have prospered since GST implementation as no customs duty is levied when an aircraft get its spares from overseas and brings it back to India. “If customs duty on imports of MRO was 18%, the government would collect $180 million annually. Indian MROs are paying 18% and all of us are in the red, as no one wants to place orders with us,” he said.
In 2016, airlines spent around US $950 million in MRO of their aircraft however Indian MRO companies received only 10% of this business. The reason behind this was that Indian airlines preferred to get the MRO of their aircraft done in countries such as Singapore, Sri Lanka, Nepal, China and Dubai due to higher taxes levied in India.