March 06, 2013
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.