India is planning to extend the tax holiday on profits earned by aircraft leasing firms in its newest finance hub to 15 years, said people familiar with the matter, to get a bigger piece of the global leasing market currently dominated by Ireland.
Plane leasing companies housed at Gujarat International Finance Tec-City, or GIFT City, currently get a tax waiver for 10 years. Expanding this benefit by five years will make GIFT City more attractive to lessors who typically make the bulk of the profit on an aircraft in the latter years when there’s little or no depreciation charge, said the people who did not want to be identified as the discussions are private.
Profit is much lower, in the range of 1 per cent or so, during the early years of a plane leasing cycle but it surges to as much as 40 per cent in the later years, the people added. About 33 aircraft lessors were registered at GIFT City and more than 60 aircraft and engines have been leased through them as of Jan. 31, according to a report from KPMG.
The policy change set to be part of India’s budget proposals announced in February is an attempt to help the upcoming finance hub gain market share in the $187 billion global aircraft leasing business. Competition is fierce, with about half of the world’s leased aircraft currently managed from Ireland, and China, Singapore and Malaysia all vying for more of the market.
India’s commercial aircraft leasing market was estimated by Cognitive Market Research to be smaller at about $4.7 billion in 2023 and growing at 11.8 per cent annually.
India’s aviation ministry and the Press Information Bureau did not immediately respond to emails seeking a comment on the plan to extend the tax benefits.
Pet Project
The move to lure more aircraft lessors to GIFT City follows its recent success in attracting global financial institutions, including Mitsubishi UFJ Financial Group Inc. and HSBC Holdings Plc, with a slew of tax incentives. The two-decades-in-the-making pet project of Prime Minister Narendra Modi, GIFT city is India’s attempt to challenge financial centers like Singapore, Hong Kong or Dubai.
The proposed tax holiday extension, if implemented, would benefit the aircraft leasing firms of the largest local carriers — IndiGo’s InterGlobe Aviation Financial Services IFSC Pvt. and Air India’s AI Fleet Services IFSC Ltd.
A spokesperson for Akasa Air said the smaller budget carrier has also applied for approvals to set up a leasing entity in the low-tax hub.
The policy change will also benefit subsidiaries of global companies. Rolls-Royce’s RRPF Engine Leasing (India) IFSC Pvt., CRJ Aviation Leasing (IFSC) Pvt. and Willis Lease Finance India IFSC Pvt. are among those registered at GIFT City, according to a regulatory website.
