Kenya will lose its regional aviation competitiveness due to new taxes
Kenya will lose its regional aviation competitiveness to its neighbours if the Treasury proposal to impose value-added tax (VAT) on imported aircraft and drones is approved by Parliament, aviation lobbyists have said. The Association of Air Operators (KAAO) and the African Airlines Association (AFRAA) said the proposed imposition of 16 percent VAT will spell doom for the local aviation industry.
The associations told the National Assembly’s Committee on Finance and National Planning that the Finance Bill 2024, which proposes to remove tax exemptions to the aviation sector, will hit the expansion of new areas like Unmanned Aircraft Vehicles (UAVs). “The intended removal of VAT exemptions will have a direct impact on our regional competitiveness and impact the advancement of Kenya’s aviation sector,” Mbuvi Ngunze, the KAAO chairman said.
“Policymakers must realise the multifaceted implications of such actions and prioritise strategies to safeguard these critical exemptions in line with both the International Civil Aviation Organisation (ICAO) and the East African Common External Market Tariff on zero-rated taxes on aviation.” The Finance Bill 2024 seeks to reverse the tax exemptions granted to the aviation sector in the Finance Bill, 2023.
The Treasury is seeking to introduce 16 percent VAT on the importation of aircraft and spacecraft, direction-finding compasses, instruments, and appliances for aircraft. The Bill also seeks to impose 16 percent VAT on hiring, leasing, and chartering of fixed-wing aircraft, helicopters, UAVs, and balloons. Mr Ngunze told the committee that the effect of imposing 16 percent VAT on the importation of aircraft will ,for example, result in a $576,000 (Sh74,928,591.49) increase in the cost of a Cessna 208 Caravan plane and $140,800(Sh18,322,569.97) in engine overhaul for Bombardier Dash 8-200 plane.
It currently costs $3,600,000 (Sh468,809,110.30) to imp o r t a C e s n a 2 0 8 a n d $880,000(Sh114,628,316.66) to import a Bombardier Dash 8-200 engine for overhaul, respectively. With VAT it will cost $4,176,000 (Sh544,136,129.41) to import a Cesna 208 and engine overhaul to $1,020,800 (Sh133,020,073.91) to ship in Dash 8-200 engine. He said the tax regime in Tanzania, Uganda, Rwanda, Nigeria, Angola, Mozambique, and Malawi enjoy different incentives in line with both ICAO and the East African Common External Market Tariff on zero-rated taxes on aviation aimed at growing the industry
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