Finance Bill: Aviation operators oppose 'costly' tax measures

Stakeholders presenting their views on the Finance Bill, 2025 have called for reconsideration of some of the proposals contained, saying majority of them could have heavy implications on the cost of services they render.

The Kenya Association of Air Operators (KAAO) said the Finance Bill 2025 seeks to reintroduce Value Added Tax, Import Declaration Fees and Railway Development Levy on aircraft, parts, and maintenance services.

In their memorandum to the National Assembly Finance Committee that is currently holding public hearings on the Bill, KAAO noted that the said measures that would fundamentally alter the cost structure of aviation in Kenya.

They insisted that the industry requires certainty on policy and the current constant twist and turns in policy environment do not give confidence for long term and capital-intensive investments required for the sector to flourish

“These proposed changes threaten to unravel recent progress made and puts at risk Kenya’s position as a regional leader in air connectivity, fleet modernisation, and innovation,” read their memorandum.

KAAO said the taxes also run counter to International Civil Aviation Organisation and East African Community (EAC) policy frameworks ="https://www.standardmedia.co.ke/business/financial-standard/article/2001518174/how-finance-bill-2025-risks-hiking-kenyas-clean-energy-costs">recommending tax exemptions< on international air transport inputs due to their wide-reaching economic impact, adding that tourism, which is a cornerstone of Kenya’s economy, stands to suffer the most.

“With over 70 per cent of international tourists arriving by air and light aircraft playing a vital role in connecting visitors to national parks and coastal destinations, any increase in aviation costs will directly affect visitor volumes.

“The government projects international tourist arrivals to exceed five million by 2028, a target that hinges on affordable, reliable air access,” KAAO stated.

Furthermore, the domestic air travel market is vibrant and a key connector for both business and leisure travel with projections indicating growth to over six million passengers by 2028.

The association said burdening the aviation sector with new taxes risks driving up fares, shrinking route networks, and ultimately eroding Kenya’s brand as a premier destination.

It also urged Parliament to uphold the current exemptions and reaffirm aviation’s role as a national economic driver and in line with the Governments own National Aviation Policy, as part of protecting growth and the thousands of jobs and businesses tied to it.

The association said there is need to safeguard economic growth, ="https://www.standardmedia.co.ke/national/article/2001518948/public-participation-on-finance-bill-begins">environmental goals<, and regional leadership, noting that Parliament should uphold existing VAT, IDF, and RDL exemptions, aligning with ICAO and EAC frameworks.

This, they stated will ensure Kenya remains at the forefront of aviation innovation in Africa.

“Despite the Departmental Committee on Finance and National Planning pronouncing itself three times on these matters in support of the industry and its role, these proposals have been re-instated in the Finance Bill, 2025,” they said.

Similarly, Deloitte and Touche has also identified a number of issues in the Bill.

For instance, they said the Bill proposes to reintroduce limitation of the period of utilisation of tax losses through amendment of Section 15(4) of the Income Tax Act (“ITA”).

According to the proposal, tax losses will only be available for utilisation in the year of income in which they arise and the succeeding five years of income.

They said the Bill has not provided room for extension of the period beyond the five years but proposes to repeal the provision that allowed the Commissioner to extend the tax loss utilisation period beyond 10 years pre2022 in Section 15(5).

The have since recommended that Section 15(4) of the ITA, which provides for the indefinite carry forward of tax losses be retained but a few amendments be made.

Deloitte has proposed that the current section 15(4) should be amended to allow taxpayers utilise the ="https://www.standardmedia.co.ke/business/business/article/2001517897/finance-bill-2025-will-trigger-a-spike-in-cost-of-goods-experts-say">tax losses in phases< until exhaustion, when they revert to payable position.

“For instance, in a particular year of income, where the taxpayer reports a taxable profit, 50 per cent of it should be used to utilise loss carried forward while the remaining 50 per cent be subjected to corporate income tax,” reads Deloitte’s memorandum.