Bangalore airport consortium’s tax proposal

Praveen Chandran
13 September 2002

Mumbai: The Larsen and Toubro-Siemens-Unique Zurich Airport consortium, the developer of the Bangalore International Airport, and the Karnataka state government have forwarded a proposal to the union government to convert the foreign travel tax and inland air travel tax in favour of the developer. The proposal comes with the rider that Karnataka will provide land and rationalise the 23-per cent sales tax it levies on air turbine fuel.

Confirming the development, a senior L&T official says: “Currently, the government is examining the viability of our proposal and a favourable reply is expected soon. Such relief will substantially reduce Karnataka’s burden of supporting the project.”

Currently, the airlines are collecting these charges directly from passengers, later distributing the respective shares to organisations like the Airport Authority of India and the International Association of Travel Agencies.

If the proposal materialises, the L&T-Siemens consortium will attract an FTT component of Rs 25 crore annually (at Rs 500 apiece from the projected half-a-million outbound passengers each year), and the project will benefit from the 15-per cent surcharge from 3 million inland travellers, besides any additional levy.

The Bangalore International Airport is to be developed by the L&T-Siemens-Unique Zurich Airport consortium. While the consortium will hold 74 per cent of the equity, the Karnataka State Industrial Development Corporation will hold 14 per cent. The Airports Authority of India will hold the remaining equity.

The official says the total cost of the project is estimated at Rs 1,500 crore. The Karnataka government has agreed to put in around $80 million. Project developers will infuse the remaining amount, and the debt-equity ratio of this amount will be 70:30. “Consortium members will mobilise funds through a rupee-dollar combination, and L&T is in talks with leading financial institutions and banks to mobilise the rupee loan component of the project.”