Tax will kill KQ, finance director tells legislators

Kenya Airways is lobbying Parliament for exclusion from paying value added tax (VAT) and the railway development levy, stating that the charges will push the national carrier to collapse.

The VAT Bill proposes to tax purchase and lease of aircraft, transportation of tourists and jet fuel after three years of exemption, considered as a transition period.

“We can’t afford and we will not continue functioning as an airline if the VAT Bill is passed as proposed,” said Kenya Airways finance director Alex Mbugua during a presentation to the Parliamentary Finance Committee.

The House team was non-committal on KQ’s requests, only promising to look into them.

Mr Mbugua said that introduction of VAT on international travels would push the prices of their tickets up, putting them at a disadvantage compared to their competitors.

Read: KQ eyes cost savings to restore profit

Advisories

The Kenya Association of Tour Operators has also opposed the VAT Bill arguing that the tourism industry was recovering following travel advisories issued last year by five countries and the election jitters which had kept tourists away.

The tour firms also operate on forward costing, as tourists prefer to get early bookings and plan their travels.

“Safaris for 2013/2014 have already been costed and contracts signed with overseas agents and clients. Should the VAT Bill 2013 come into law as is, the contracts for 2014/2015 which have been negotiated and committed will have to be honoured,” said chief executive Fred Kaigua.

“Local Operators will incur heavy losses should they be required to absorb the extra burden of tax as taxes are designed to be passed on to consumers.”

Though the VAT on jet fuel will take effect in the next three years, KQ came out fighting stating that they spent Sh41 billion on fuel last year, being 40 per cent of its revenue, and introduction of the tax element would worsen the situation.