Players in the aviation sector want Parliament to reject the proposal to introduce a 16 percent value-added tax (VAT) on airplane spare parts on grounds that expensive parts would hurt air safety.
The International Air Transport Association (IATA) warned that imposing VAT on airplane spare parts will increase the cost of domestic and international travel.
Agnes Mucuha, the country manager for IATA told the National Assembly’s Committee on Finance and National Planning that the introduction of the tax through the Finance Bill, 2024 will have a ripple effect on the operations of airlines.
The first schedule of the VAT Act, 2023 provides that all aircraft and aircraft parts are VAT exempt. The Finance Bill, 2024 seeks to limit the VAT-exempt status only to aircraft parts, thus subjecting the purchase of aircraft subject to 16 percent VAT.
The Finance Bill 2024 proposes to delete the VAT exemption provided for: airplanes and other aircraft of unladen weight exceeding 15,000 kilogrammes; spacecraft (including satellites) and suborbital and spacecraft launch vehicles; and hiring, leasing, and chartering of aircraft excluding certain categories of helicopters.
The Bill further targets to end VAT exemption on direction-finding compasses, instruments, and appliances for aircraft. “We propose that you retain the current provision of the VAT Act, 2023 by not approving the substitution,” Ms Mucuha said.
“Air safety is key to safeguarding passengers' trust and confidence in travel. Access to safety equipment will ensure that aircraft safety is affordable and sustainable, and safeguarding on passenger’s safety and security.”
The IATA manager said high aircraft acquisition costs will increase investment costs and increase the risks on capital hence attracting fewer investors. She said by keeping all aircraft at VAT-exempt status, domestic travel will increase in volume and the Kenya Revenue Authority (KRA) will collect higher air passenger service charges, and VAT on hotels, meals, and accommodation services.
“The higher volume will increase KRA's VAT earnings sustainably,” Ms Mucuha told the committee, which is receiving stakeholder views on the Finance Bill, 2024.
She said the imposition of VAT on aircraft supplies would translate to extra costs to domestic airlines in Kenya as no input tax credit is available on domestic transport services.
Ms Mucuha, who was accompanied by representatives from Ethiopian and South African airlines, told MPs that where aircraft become subject to VAT at 16 percent are purchased for international travel, the tax will further increase the VAT refunds due to airlines as international travel is zero rated for VAT.
“This would be an adverse outcome for the KRA and the National Treasury,” she said.
She also asked the committee to remove taxation on drones arguing that drone technology is an innovation still in its infancy, and that a direct tax would stifle its growth and advancement and deny the Treasury the opportunity to grow and develop rural and marginalised areas.
She said safe and secure air space is promoted by the quality of the aircraft and the maintenance and repair integrity. “A safe airspace will attract more investors and provide the KRA an opportunity for indirect tax through consumption of goods and other services,” she said.
“It is not uncommon for airlines to have to replace certain items due to them reaching their useful lives or due to unforeseen malfunctioning.”
Kuria Kimani, who chairs the committee said the team will consider the proposals made by IATA to ensure the safety of the air space.
“I think it is important that you remain competitive so that we don’t take the business to our neighbourhood like Serengeti when we have Maasai Mara,” Mr Kimani said.
by the Kenya Investment Authority’s (KenIvest) budget, which has been slashed 71.23 percent to Sh90.88 million from Sh315.91 million.
KenInvest is proposed for consolidation with Kenya Export Promotion and Branding Agency (Keproba), Kenya Tourism Board (KTB), Tourism Research Institute (TRI) and Kenya Yearbook Editorial Board.
Keproba’s budget is down 50.31 percent to Sh217.43 million, KTB’s by 58.77 percent to Sh114.06 million, TRI’s by 67.57 percent to Sh18.46 million, while Year Book’s spend has been reduced 37.94 percent to Sh70.75 million.
The recurrent expenditure for the Women Enterprise Fund (WEF) has been cut the most among affirmative funds ahead of the proposed merger with the Youth Enterprise Development Fund (YEDF) and Uwezo Fund. WEF management faces a 72.71 percent cut in the recurrent budget to Sh81.1 million, YEDF’s has been shaved 61.54 percent to Sh125.02 million, while Uwezo’s is down 8.46 percent to Sh140.70 million.
Kenya National Qualification Authority will suffer a 51.59 percent cut to Sh145.22 million if the estimates are approved by lawmakers. The entity is earmarked for a merger with Commission for Universities Education whose expenditure has been increased 10.38 percent to Sh259.44 million.
