From July 1, aircraft lease companies will not have to pay withholding tax on transactions with customers at the International Financial Services Centre.
According to a gazette notification released by the Central Board of Direct Taxes, no lease or supplement lease fee will be charged on aircraft leases completed at IFSC at the planned Gujarat International Finance Tec-City.
By encouraging foreign lessors to set up shop here, the government hopes to make the nation a global centre for aircraft leasing that can compete with Dublin or Singapore. Although the action has been praised for making the third-largest domestic aviation market in the world leasing independent, analysts are concerned about how easily such deals may be financed.
At least 13 leasing companies are registered by the private sector. According to partner at law firm DSK Legal, the government and the regulatory bodies will have to do more by incentivising banks to fund the transactions.
The lack of a proper financing framework may be a problem for aircraft leasing, which can only be found in centres with easy access to capital.
aircraft trading and aircraft financing are parts of aircraft leasing. The aircraft is a hard asset in a capital-intensive industry. The partner at aviation advisory Caladrius Aero asserts that the leasing business needs strong financial support.
Dublin is supported by the European banks, Singapore, Singaporean banks, Hong Kong and Mainland China, as well as the Chinese banks.
Funding from overseas makes it less attractive to set up shop and do business from the GIFT city. DSK’s Pardasani thinks that a push towards cost-effective financing will make GIFT city more attractive to lessors.
Foreign banks are unwilling to take on risks in a jurisdiction because of the lack of a support system.
Why should leasing companies start a business when the policy is not complemented by financing? There is a provision under the Alternative Investment Fund in India, but where is the equity support? asked Tomar rhetorically.
According to data compiled by Business Today, the order book at major Indian carriers stands at over 1100 aircraft. Dublin is a centre that most Indian carriers depend on to meet their requirements.
It is possible that the ministries of finance and civil aviation need to review this aspect. India will not be considered a global contender in the aircraft leasing business until then.
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