Air operators have warned that tax measures proposed on aviation in the Finance Bill 2024 will cripple the industry and sectors that depend on it including tourism, international trade and emergency response services.
In a statement circulated to media outlets today the operators lobby, Kenya Association of Air Operators (KAAO) said the proposed elimination of Value Added Tax (VAT) will increase the cost of air transport services to consumers thereby making them less accessible to affordable.
The operators wants Treasury and Parliament to scrap the proposals in the Bill arguing that retaining the targeted exemptions is indispensable for sustaining growth, ensuring sector competitiveness, and safeguarding the aviation industry’s vital role in Kenya’s economy.
In the Finance Bill 2024, the National Treasury has proposed to remove VAT exemptions on aero planes and other aircraft on unladen weight exceeding 2,000 kgs but not exceeding 15,000kgs. The bill also proposes to do away with exemption on spacecraft (including satellites) and suborbital and spacecraft launch vehicles as well as on hiring, leasing, and chartering aircraft, excluding helicopters. If it becomes law in its current form, the bill will also eliminate exemption on direction-finding compasses, instruments, and appliances for aircrafts.
The operators said the exemptions targeted for elimination have been instrumental in stimulating growth and investment within the industry.
“The proposed deletion of the exemptions threatens to undermine the substantial progress achieved in recent years, posing a significant risk to the sector’s sustainability and its contribution to Kenya’s economic growth,”
On revocation of aircraft VAT exemptions, the operators argue that this measure will precipitate a significant surge in acquisition costs for airlines and operators.
“This, in turn, will trigger escalations in air travel and charter services, cargo services, aerial services, unmanned aircraft vehicle (UAV) services, balloon operations, aircraft repair and maintenance and training prices, thereby impeding the sector’s growth trajectory in maintaining and developing Kenya’s air transport system,” said the lobby in the statement.
Regarding the proposed abolition of VAT exemptions on hiring, leasing, and chartering aircraft, the operators said the measure poses a significant risk of escalating operational costs while the removal of exemptions for spacecraft and launch vehicles threatens to stifle investment in space-related endeavours, curtailing opportunities for innovation and collaboration in this burgeoning frontier.
“In essence, the potential removal of these VAT exemptions will have a direct impact on our regional competitiveness and impact the advancement of Kenya’s aviation sector,” said the lobby group.
They want Treasury and Parliament to recognize the multifaceted implications of such actions and prioritize strategies to safeguard these critical exemptions in line with both the International Civil Aviation Organization (ICAO) recommendations and the East Africa Common External Tarriff on zero-rated taxes on aviation.
“Preserving these measures is imperative not only for sustaining industry growth and encouraging investment but also for upholding Kenya’s position as a regional aviation hub and ensuring continued economic prosperity,” said the lobby group.
