GST clarification to make India’s maintenance and repair and overhaul (MRO) industry competitive
By: Admin
June 27, 2024
Categories: GST Recent News
4 Min Read
The aircraft maintenance and repair industry in India is set to benefit from a recent revision of Goods and Services Tax (GST) rules, aiming to capitalize on the country’s thriving aviation market. The 53rd GST council proposed a uniform 5% tax on the import of aircraft parts, components, testing equipment, tools, and toolkits, regardless of their HSN code.
HSN, or Harmonised System of Nomenclature, is a globally recognized numerical code used for product classification during taxation. The Maintenance, Repair, and Overhaul (MRO) industry executives believe that this revision will help eliminate uncertainties surrounding the classification of raw materials by customs.
In 2020, the government lowered the GST on MRO industry imports from 18% to 5% to aid the sector during Covid. However, customs officials faced confusion due to multiple raw materials sharing common HSN codes with other items. As a result, specialized raw materials like aircraft paints, specialty steel, nickel-based alloys, and aerospace-grade aluminum have been taxed as non-aircraft parts, leading to higher duties and taxes.
For example, when an aircraft undergoes periodic checks in an Indian MRO hangar, airlines may wish to replace the galley carpet. These specialized carpets, which are not manufactured in India, must be imported and incur a 12% duty, similar to regular carpets. This increased cost makes the Indian MRO industry less competitive. Similarly, aircraft paint, a specialized product, is taxed at 18%, the same rate as regular paint.
According to the managing director of Hosur, Tamil Nadu-based Air Works, a company serving multiple Indian and global airlines, the GST Council’s decision will help reduce ambiguity. He stated that the government’s revision of GST norms enhances the appeal and competitiveness of Indian MROs globally, potentially attracting international investments to establish an indigenous MRO ecosystem and boost self-reliance in the sector.
As maintenance demands shift towards higher-value services like engine and component overhauls, component costs gradually surpass labor costs. The managing director added that the reduction in duties allows them to offer more competitive rates to customers, expanding their potential market.
Considering India’s strategic geographical location between significant Asian and European countries, the government has implemented measures to position the country as a leading passenger and aircraft MRO hub worldwide.
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