The tax situation is leading some business owners to avoid the problem altogether by registering the aircraft overseas and using it in-country no more than six months out of the year. Import duty is not applicable in those cases. This loophole, however, is something the finance ministry is reexamining.
Aircraft spare parts are also subject to 18.5% import duty and 12.5% VAT. The duty, however, can be reduced to 3% if the part is for a non-scheduled commercial operator (NSOP).
Maintenance service providers want to have a pool of spare parts on hand, however, there is no way of knowing whether the part they import will eventually be sold to a private operator or a NSOP. Unless the MRO operator can identify the specific aircraft the part will be used on, the tax department assumes it is subject to the 18.5% rate.
Because of this some industry players have decided to refrain from stockpiling, which means business jet operators must wait for a part to be couriered—usually from Dubai or Singapore.
Without immediate access to spare parts, aircraft may have to be grounded. Most operators are more than willing to wait a few hours for a part for safety's sake, but if the aircraft has to be grounded for two to three days, there is a temptation to keep flying.
A bonded warehouse to house spare parts in-country is one solution. The tax will only be charged once a part leaves the warehouse. But obtaining government approval for this is a protracted, expensive procedure.
MRO firm Air Works has set up a bonded warehouse near Bangalore airport and original equipment makers are scrambling to make use of it. At the India Aviation air show, Embraer and Hawker Beechcraft signed deals with Air Works.
Another hurdle for business aircraft here is an inadequate airport infrastructure. Though new airports are being built country-wide for commercial aviation, the bizav sector appears to be an afterthought.
Once commercial airlines move to the new airports, the old sites could be converted for business aviation, but instead business jet operators are encouraged to move to the new airports, while the outmoded ones are largely left abandoned.
Two cases in point are the new airports in Hyderabad and Bangalore, Rajiv Gandhi International and Bengaluru International, respectively. Rohit Kapur, president of India's Business Aircraft Operators' Association, says the old airports in those cities are largely no longer being used for business aviation.