Tax savings bound to lift Kenya Airways’ share price

14 BILLION VAT TAX RELIEF HUGE BONUS FOR KENYA AIRWAYS

(Posted 29th August 2014)

Amendments to the Finance Bill 2014 passed this week have finally removed the hotly disputed VAT taxation on new aircraft and aircraft spare parts, which not only saw Kenya Airways and other Kenyan airline relentlessly lobby parliament but also brought such aviation organizations like AFRAA and IATA into play. Around the world are airlines commonly exempted from such taxes and had Kenya retained them the country would have stood out like a sore thumb.

Those members of parliament, and individuals within the Kenya Revenue Authority thought behind the initial move to tax airlines can now hang their heads in shame as had the tax remained would Kenya’s international aviation industry become utterly uncompetitive for having to shoulder a tax burden, in the case of Kenya Airways this financial year alone some 14 billion Kenya Shillings. This would have impacted on ticket prices to the advantage of the already predatory Gulf carriers and African competitors like Ethiopian Airlines. None of those airlines face the level of fees, charges and taxation like Kenyan airlines did and yet, ostensibly to finance their fat cat life styles, had members of parliament insisted on levying VAT on new aircraft and spares to generate the money needed to finance their salaries and benefit packages, which are said to be among the highest in the world.

Thankfully though did the power that be finally put their foot down and had the amendment included in the new Finance Bill which is now due to be signed into law by President Kenyatta. The Kenyan president had over the past year repeatedly been at Jomo Kenyatta International Airport to witness the arrival of new aircraft for Kenya Airways and it is understood that at every visit were the issues of taxation and of the need to keep the airport expansion on track raised with him, so it is gratifying to see that aviation has finally had its way.

The tourism industry can perhaps take this as a positive sign that it is after all possible to get government to make changes to policy and tax laws, as VAT on tourism services apparently still remains on the books and should also be thrown out as it made a range of services 16 percent more expensive at a time when the market is in steep decline and when holidays to Kenya should be attractively priced and not those visitors still daring to defy anti travel advisories be punished by having to dig deeper into their pockets.

Share prices of Kenya Airways’ stock are bound to benefit from the anticipated savings as this calendar year alone two more B787-8 Dreamliners and two B737-800NG’s are expected to join the fleet before additional aircraft deliveries take place in 2015.

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