Give a little and take a lot seems the tenor of the latest VAT review


(Posted 24th April 2014)

Details are emerging from Nairobi that attempts to lift VAT from several areas impacting on the country’s tourism and aviation industry were only partially successful when the national assembly debated the draft bill and accepted some while rejecting other proposals to scrap the costly tax.

Air ticketing services for instance are now to be spared from the 16 percent VAT with the committee which studied the impact of this measure concluding that keeping it would make Kenya uncompetitive as the only country in the region and infact beyond in Africa to levy such extra charges on such services.

Also, according to information received, were light aircraft up to an overall empty weight of 2 tons, considered for the VAT removal on spare parts, a crucial victory as flying schools often use such aircraft to see pilot aspirants train to the level of the PPL – aka Private Pilot Licence, the precursor of the Commercial Pilot Licence before then graduating to the ATPL, the Air Transport Pilots Licence. Keeping VAT on spare parts for such planes would have made the training of pilots even more expensive and negatively impacted on the number of graduates, leaving the country exposed to a future lack of qualified pilots.

However, it appears that aircraft beyond this weight class, in particular large commercial aircraft, will continue to attract VAT, which if found to be correct will hit national airline Kenya Airways with some 1.1 billion in already incurred VAT and a further at least 400 million Kenya Shillings of VAT on a spare engine delivered with their latest acquisition, a B787 Dreamliner. The result, according to a regular aviation source, will be that Kenya Airways will have to pay taxes on items which their main competitors are not paying, ultimately impacting on the cost of tickets as such tax burdens need to be catered for , while the big Gulf airlines are exempted not just from such taxes but also from other tax measures the Kenyan government has in the past heaped upon locally registered airlines. ‘I don’t think these MP’s even distantly understood what was at stake here. They are making the cost basis for our airlines more expensive, so how do they expect them to compete against some of the neighbouring countries which are giving KQ a run for their money already or the big league from the Gulf and Europe. It is a short sighted measure. It is a big deal for airlines, even those flying from Wilson Airport providing services to some of our upcountry aerodromes and airfields. It keeps the cost of flying for wananchi [Kiswahili word for local people] higher than necessary and makes flights for tourists more expensive at a time when we are already seeing a big drop in arrivals. It also contradicts those assurances of support for our national airline made by politicians when they come to JKIA to receive and name a new plane, if they really want to support aviation, this would have been the first way to show some meaningful help’.

The tourism industry, several key services were also subjected to VAT last year, has also not received reprieve on transport services, maintaining the unfortunate situation that at a time when tourism is struggling to regain its former glory days and is staring at an uncertain future, especially at the Kenya coast, the cost of services remains higher than in other competing destinations in the region and in Southern Africa, which must now be laughing all the way to the bank by offering more competitive pricing and the perception of being a safer destination, something Kenya has been struggling with also.

The explosion of a car, stopped at a road block and ordered to be driven to the Pangani Police Station in Nairobi for further investigation, amounted to a suicide / murder bombing as two police officers got killed when the suspects blew themselves up with their car just after entering the police station compound. The two officers had been in the car to ensure the suspects were following instructions to drive to the station and paid with their lives for doing their duty.

This latest in a series of incidents over the past few months casts long shadows over any significant recovery of tourism arrivals as the news promptly made their way into the global media, adding yet more negatives to the perception abroad that Kenya as a destination is not safe to visit. Added a second source passing the same information overnight ‘I think we no longer get through to either parliament or government. They live in a world of their own now, like on a different planet where what happens in the real world apparently does not touch them. They either don’t know or don’t want to know and if there were elections today they’d be decimated, not that the opposition has any meaningful alternative to offer, not in terms of personnel and not in terms of alternative policies. It was a dooms day when we voted for the new constitution and that too would be defeated if Kenyans had another chance to vote on it. Kenya has so much to go for it and yet the people we put in charge seem hellbent to mess it all up’. Harsh words but these sentiments are shared by many others, one of whom stated that it is less painful to run head first into a brick wall than having to make sense of Kenyan politics these days. Watch this space.

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