MUMBAI, June 3: Major aviation deals, including ambitious aircraft purchase deals to be struck with the world's largest majors Boeing of the United States and Airbus Industrie of France by the country's public and private sector air corporations, may have to be re-examined due to the government's latest move removing withholding tax exemptions to foreign lenders.The proposal to do away with interest tax exemptions under section 10 (15) will skew up the very basis on which overseas loans and deferred payments were granted by the foreign lender and project cost estimates are likely to go haywire.
Huge foreign lendings are associated with the purchase of large aircraft, point out the market sources, which run into thousands of crores. The non-availability of the interest tax exemption to the foreign lenders is likely to make borrowing by Indian aviation companies' a more expensive affair as the lenders will add on the tax payable.
Private airlines, including private sector leader Jet Airways (which owns anumber of Boeing aircraft already) will also find it difficult to purchase outright new aircraft.
One of the biggest deals in Indian aviation history is proposed by the government for Air India, for which both Boeing and Airbus Industrie are fighting a serious battle.
The exemptions were also extended to the forex loans mopped up by the Indian financial institutions will however continue as before, even as the interest tax exemptions on overseas loans to domestic banks as specified will stand abolished under the new provisions.
Under Section 10 (15)(iv) (c) and (f) of the Income Tax Act, interest paid by Indian industrial undertakings on monies borrowed or debts incurred outside India for purchase of raw material or plant and machinery outside India or on foreign currency loans from sources abroad was exempt from tax to the extent approved by the central government. The exemption was also extended to the FIs under loan agreements approved by the government.
One problem is that if finance is madeavailable now to the Indian aviation companies by foreign lenders, they will not only add on the tax cost payable, but also add on the cost of the tax exemption that they would have got under double taxation avoidance treaties with their countries.
India's tax treaty with Japan, UK and Australia, for example, provide for the tax sparing provision, and lenders based in these countries were spared from payment of of taxes in their home country, although it was exempted from interest tax in India.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
