The government?s move to tax all offshore deals having Indian asset with retrospective effect has put foreign investors looking at entering Indian aviation industry on guard. Aviation industry experts feel that the move could be a dampener for a few merger and acquisition deals expected in the industry, thereby adversely impacting the sector bleeding badly due to high fuel prices and taxes.
?The government must review the retrospective taxation norm on sale of equity. The concept of retrospective taxation may send out wrong signals to global investors, especially when we are expecting some equity deals to happen in the aviation sector,? Amber Dubey, director (aviation), KPMG, said.
In the airline space, the government has made it clear that the Cabinet is actively considering a policy to allow foreign carriers to invest up to 49% in domestic carriers.
Once the policy in this regard is implemented, the immediate deal that is likely to happen is the sale of stake by private carrier Kingfisher. The airline is reportedly in talks with two foreign carriers for equity deals.
The airport developer GVK is also in advance talks to offload 26% in its airport business to the Singapore government-owned Changi Airports. ?All these investors will rethink over the new norm,? Dubey said.
Finance minister Pranab Mukherjee on Saturday clarified that the proposal to tax offshore transactions of Indian assets retrospectively will not lead to reopening of cases beyond last six years.
?There is no question of reopening old cases. In exceptional cases, where any case has escaped attention of tax administration, they can be reopened but only for the past six years,? he said.
The airline officials said the clarification is a breather as it there are not too many equity deals happening in the near future, a view shared by the industry observers as well. ?There will not be any impact as most of the deals in aviation are prospective, not retrospective,? Kuljit Singh, partner, Ernst & Young said.
The government has also allowed domestic carriers to raise up to $1 billion by next year for their working capital requirements.
