India’s burgeoning Maintenance, Repair and Overhaul (MRO) industry got a much-needed boost when the government announced tax concessions on imports of spare parts and testing equipment for aircraft repair work.
The Indian government also extended the time period for consumption or installation of the parts or equipment from three months to one year.
“The MRO sector is at a nascent stage. Encouraging the industry will generate employment besides other benefits,” the country’s finance minister, P. Chidambaram, said in a federal budget presentation to Parliament on Feb. 28.
The MRO industry has been faced with high taxation on imported spares and components. The budget proposes to exempt basic customs duty for spare parts and testing equipment for MRO facilities. The import duty is currently about 19% on spare parts and equipment.
The MRO industry has also been demanding a reduction in the service tax from 12.5%, along with an import duty including a countervailing duty of 18.5%.
“We also want a uniform tax rate of 2.5%,” says an industry official.
According to estimates, the government earns about 1.5 billion rupees from the levy of import duty on spares and equipment.
The country’s MRO capacity has been lacking, and existing facilities are not able to fully meet airlines’ requirements. As a result, most of the airlines, aside from national carrier Air India, send their aircraft to foreign maintenance organizations, mostly to the Middle East or Singapore.
Industry experts feel the proposed concessions for aircraft repair facilities will help airline companies reduce maintenance costs, strengthen finances and boost growth of the country’s MRO industry.
“It is a small step in the right direction. The one-year window for consumption of spares is very realistic,” Air Works Managing Director Vivek Gour says.
The number of aircraft in India is increasing, and there is an urgent need to improve MRO facilities, Gour adds.
He says the government’s announcement will allow local MRO firms to compete with existing facilities in the region and foreign firms.
Last June, Air Works invested 1.2 billion rupees ($22 million) in Dubai’s Empire Aviation Group (EAG) to strengthen its presence in the Middle East and provide aircraft management services to customers in India.
“The move essentially means that we do not have to pay import duty for one year. This will not only improve efficiency, but will give us a lot of flexibility to not only provide labor and consultancy jobs, but also to get spares and save some money that will in turn benefit our customers,” Gour adds.
Last year, then-Finance Minister Pranab Mukherje offered a waiver in custom duty for the import of spares and testing equipment by MROs under the condition that the spares were utilized in three months.
Photo: Air Works