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Tax breaks may lead to foreign aircraft leasing firms setting shop at GIFT city
1 min read.Updated: 03 Feb 2021, 05:12 AM ISTRhik Kundu
Foreign aircraft lessors will consider several factors like demand, tax incentives and access to money
Major Indian airlines, including the top domestic operator IndiGo that have a huge aircraft order book, conduct sale and lease-back (SLB) of planes
NEW DELHI :
Foreign aircraft leasing companies could open offices in India after the Union budget announced incentives for them to establish base at the International Financial Services Centre (IFSC) in GIFT City (Gujarat), two senior executives of aircraft leasing companies said.
“This (budget announcement) is the first step," said Zhang Weiqun, senior manager, aviation leasing department, CMB Financial Leasing Company.
Foreign aircraft lessors will consider several factors before starting operations in a particular country, including demand, tax incentives and access to money since the sector is capital intensive, said a second senior official from a major aircraft leasing corporation, who spoke on the condition of anonymity.
“Various taxes on the aviation sector in India is very high though there is demand with Indian airlines placing huge orders from aircraft manufacturers," the official said.
Major Indian airlines, including the top domestic operator IndiGo that have a huge aircraft order book, conduct sale and lease-back (SLB) of planes to remain asset-light and profitable.
An SLB is a transaction in which the owner sells the aircraft and then takes it back on lease from the buyer. This kind of deal typically removes the aircraft and its associated debt from the carrier’s balance sheet.
Indian carriers also regularly lease planes from foreign lessors.
Zhang said China, one of the world’s largest aviation markets, did not have many aircraft leasing companies till about 12 years ago. But, since then, the sector has opened up and China currently hosts a number of leasing companies, he added.
In a bid to attract foreign aircraft lessors to set up shop in the country, the government on Monday rolled out tax incentives for companies that are willing to set up shop at IFSC.
“...the government is committed to make the International Financial Services Centre (IFSC) in GIFT City a global financial hub. In addition to the tax incentives already provided, I propose to include, among others, tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors," finance minister Nirmala Sitharaman said in her budget speech.
Indian tax laws mandate all foreign companies in the country to file a corporate tax return in India if they have a local source of income. This often discouraged the foreign lessors from starting operations.
All major Indian airlines currently carry out their leasing activities in countries such as China, Hong Kong, UAE (Dubai) and Ireland.