Why in the News?

The government has implemented a uniform Integrated Goods and Services Tax (IGST) rate of 5% on all aircraft and aircraft engine parts.

Background:

Prior to the implementation of GST in 2017, the taxation of aircraft and aircraft parts was complex, with different central and state taxes being levied.
Under the pre-GST regime, aircraft parts attracted a range of taxes, including excise duty, VAT, and additional customs duties, leading to a cascading effect and higher costs for the aviation industry.

This move is aimed at boosting Maintenance, Repair, and Overhaul (MRO) activities in India.
Previously, GST rates on aircraft components varied between 5%, 12%, 18%, and 28%, causing several issues.

The Indian MRO industry is projected to become a $4 billion industry by 2030.
Currently, India represents only 1% of the global MRO market, which is worth US$45 billion.
The industry is divided into airframe maintenance, engine maintenance (50-55% of work value), components maintenance, and line maintenance (weekly checks).
Commercial airlines spend 13-15% of their revenues on maintenance, primarily outsourcing heavy maintenance.

Inter-state /UT supply of goods and services;
Imports of goods and services;
Supply of goods and services to/by SEZ units;
Deemed exports (certain transactions where goods supplied do not leave the country but are treated as exports under GST law).

IGST is calculated by adding the applicable Central GST (CGST) and State GST (SGST) rates.
One thing to remember in IGST is that the importing state gets the accrued benefit of taxes.

Simplification of Tax Structure: A uniform 5% IGST rate on aircraft and engine parts simplifies tax compliance and eliminates classification complexities.
Cost Efficiency: A lower IGST rate reduces overall tax burden on aviation industry, enhancing affordability of aircraft acquisition and maintenance.
Global Alignment: Aligns India’s tax policy with global standards, fostering competitiveness and attractiveness for international aviation investments.
Promotion of Aviation Services: Encourages aircraft leasing and MRO activities, supporting India’s aspiration to become a hub for these services.

[2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3