The Goods and Services Tax (GST) has been slashed from 18 percent to five percent on domestic maintenance, repair and overhaul (MRO) services for the aviation sector, the government announced on March 14.

The industry players had long been demanding the government to reduce the GST rate on aircraft MRO services.

The reduction in taxation rate is expected to accelerate the pace of setting up of MRO services in India.

The expansion of MRO sector is expected to assist in employment creation as the industry is labour-intensive. Like other industries such as information technology, where India has become the back-office of the world, certain tweaks in taxation could see aircraft fly to India for MRO visits, experts have claimed.

Civil Aviation Minister Jyotiradiya Scindia, while speaking on India’s new policy for aircraft MRO services in September last year, said the ministry plans to implement allotment process for MROs via open tender and that it will provide allotment for 30 years to provide stable ecosystem for investors.

The aviation ministry is trying to attract private investment for MRO at 8 airports, Scindia had noted.

The Ministry of Civil Aviation, while announcing the reduction in the GST rate on MRO services today, also noted that the "issue of reduction of Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) has been taken up with the states and the UTs."

The following 11 States/UTs have reduced the VAT on ATF to below 5 percent: Andaman & Nicobar Islands, Dadar & Nagar Haveli and Daman & Diu, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Ladakh, Madhya Pradesh, Tripura, Uttar Pradesh and Uttarakhand, the statement added.