GST reduced from 18% to 5% for domestic maintenance, repair and Overhaul (MRO) services.

GST reduced from 18% to 5% for domestic maintenance, repair and Overhaul (MRO) services.

What is the news:

• The government has reduced the Goods and Services Tax (GST) rate on domestic maintenance, repair, and overhaul (MRO) services to 5 per cent from 18 per cent in order to support the aviation sector.

What is the aim behind the decision :

• To meet the increasing demand in the aviation sector, the government has reduced the Goods and Services Tax (GST) rate from 18 per cent to 5 per cent for domestic maintenance, repair and overhaul (MRO) services.
• The government has taken several steps to meet the increasing demand in the aviation sector in the future.

About air passengers :

• The average number of passenger carried in the pre-COVID financial year (2019-20) was around 4 lakh per day. On 6th March 2022, domestic airlines in India carried around 3.7 lakh passengers.
• The number of daily air passengers may cross pre-COVID levels in a few months.

Reduction of Value Added Tax (VAT) on Aviation Turbine Fuel (ATF)

• The central government has taken up the issue of reduction of Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) with the states and the union territories.
• Eleven States/UTs have reduced the VAT on ATF to below 5 per cent. These States/UTs include Andaman & Nicobar Islands, Dadar & Nagar Haveli and Daman & Diu, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Ladakh, Madhya Pradesh, Tripura, Uttar Pradesh and Uttarakhand.

Greenfield Airports :

• Government of India has accorded ‘in-principle’ approval for setting up of 21 greenfield airports across the country. So far, eight greenfield airports namely, Sindhudurg and Shirdi in Maharashtra, Durgapur in West Bengal, Pakyong in Sikkim, Kannur in Kerala, Orvakal in Andhra Pradesh, Kalaburagi in Karnataka and Kushinagar in Uttar Pradesh have been operationalised.

Future of MRO sector in India :

• The Maintenance, Repair, and Overhaul (MRO) sector, which ensures the availability and airworthiness of aircrafts, is of critical importance to global aerospace & defense industry.
• Industry reports identify India as the seventh-largest civil aviation market in the world.
• It is set to become the world’s third largest by 2026, representing a significant expansion scope for MRO facilities in India. About 90 percent MRO requirements in India are currently met through imports.
• India’s indigenous MRO sector is in a nascent stage but carries a significant growth potential. The sector’s growth will mainly be fueled by a growing aviation industry (expected to generate nearly 90,000 jobs and save about US$ 2 billion in foreign exchange).
• Dependence on foreign MROs is likely to continue until the domestic MRO industry catches up with its foreign counterparts in terms of size and certified breadth of services.
• The Indian MRO industry size is expected to increase from US$ 1.7 billion in 2021 to US$ 4.0 billion by 2031, at a compound annual growth rate (CAGR) of 8.9 percent against the expected global CAGR of 5.6 percent.
• With more than 1,000 aircraft currently on order, the country is likely to become the third-largest buyer of commercial passenger planes in the world, only after the US and China.
• This translates into demand for 200–300 major maintenance checks annually. Replacing ageing aircraft in the fleets of several airlines also creates scope for MRO to meet redelivery contracts.
• India is also poised to become a large defence aircraft market, propelling demand for military MRO capabilities as well.