Air operators caution against new VAT impact on aviation

The Kenya Association of Air Operators (KAAO) has cautioned that the proposed 16 per cent Value Added Tax in the Finance Bill 2024 could jeopardise the air transport sector’s edge in the market.

Engineer Liz Aluvanze, CEO of KAAO, remarked that the new tax measure might repel potential investors. During a broadcast on Spice FM, she outlined the bill’s implications for both consumers and the investment climate.

“If we introduce this VAT, why would an investor want to come here and purchase an aircraft and operate it here when the same investor can go to a neighbouring country and do it without incentives? We will lose our competitiveness,” Aluvanze questioned.

She expressed concern over the bill’s suggestion to levy VAT on fixed-wing aircraft and helicopters, which could lead to inflated ticket prices for domestic operators, potentially by 30 to 40 per cent.

Aluvanze also pointed out that VAT on navigational tools would escalate maintenance costs, which airlines would have to absorb. She noted that operators already bear fees for services such as navigation, landing, and parking, provided by aerodrome operators.

The bill proposes extending VAT to aircraft acquisition, leasing, purchasing, and financing, intensifying the tax burden on aviation companies. Aluvanze detailed the rigorous process involved in importing aircraft into Kenya, which includes inspections, licensing, and certification, all of which could become more prohibitive with the new tax regulations.

KAAO serves as a crucial body in shaping aviation policy and promoting safety and security within the industry, representing the collective interests of aviators.