Regional air link scheme may use e-auction path

•  The civil aviation ministry is all set to start the bidding process of routes under the regional connectivity scheme (RCS) and it has sought the coal ministry’s suggestions on e-auctioning in this regard.
• The government will unveil the final RCS policy soon after which it will invite bids from the airlines wanting to fly on regional routes.

About Regional Connectivity Scheme

• This scheme will come into effect in the second quarter of 2016-17
• Airfare of about Rs 2500 per passenger for a one-hour flight
• This will be implemented by way of: a) Revival of airstrips/airports as No-Frills Airports at an indicative cost of Rs. 50 crore to Rs 100 crore; b) Demand driven selection of Airports/airstrips for revival in consultation with State Govts and airlines
• Viability Gap Funding (VGF) to airline operators: RCS only in those states which reduce VAT on ATF to 1% or less, provide other support services and 20% of VGF
• Concessions by Stakeholders: a) There will be no airport charges; b) Reduced Service tax on tickets (on 10% of the taxable value) for 1 year initially ; c) Reduced Excise duty at 2% on ATF picked at RCS airports
• State government will provide police and fire services free of cost. Power, water and other utilities at concessional rates
• Creation of Regional Connectivity fund for VGF through a small levy per departure on all domestic flights other than Cat II/ Cat IIA routes, RCS routes and small aircraft below 80 seats at a rate as decided bythe Ministry from time to time
• VGF to be shared between MoCA and State Governments in the ratio of 80:20. For the North Eastern States, the ratio is 90:10

Analysis

• In order to tap the potential of the aviation sector, the government has now made an effort to eliminate some of the impediments obstructing the growth of this sector. One such step is the National Civil Aviation Policy 2015. On perusal of the policy, it appears the government has been able to identify and isolate the significant aspects, which are relevant for turnaround of the present situation of the aviation sector.
• For instance, the government starting to implement Regional Connectivity Scheme (RCS) effective April 1, 2016 in order to achieve the target of nationwide airline connectivity. The tax incentives under RCS include, substantial reduction of tax on sale of ATF, exemption from the levy of service tax on sale of air tickets for airlines flying on designated routes.
• Also, in order to boost the maintenance, repair and overhaul (MRO) industry in India, the government proposes to offer various tax and non-tax incentives to the industry, such as zero-rating the services by such MRO unit, relaxation in availing customs exemption on import of tools and aircraft parts and extension of tax-free storage of imported equipment for up to three years.
• The success aviation sector is largely dependent on the ability of the central government to reconcile its differences with the state governments and implement all the indirect tax incentives envisaged both under the central and state laws. With the introduction of the GST regime, the government is hopeful to resolve majority of the indirect tax issues so as to boost the growth of the Indian aviation industry.
• However, it is equally imperative that until the introduction of the GST regime, the government work towards easing out the issues faced under the present tax regime by the aviation industry. One can only hope that Indian aviation industry would soon get its wings and prove to be one of the key growth sectors for the country in the years to come.

By: Vishal