LOCAL TAXES RISK KENYA AIRWAYS’ COMPETITIVENESS
(Posted 26th March 2014)
‘VAT charges on aircraft spare parts seriously risk Kenya Airways ability to compete for passengers, against African airlines like Ethiopian but mainly against the Gulf giants. All of those come to Nairobi and they also compete for traffic from the rest of Africa to India, Thailand and China. Our legislators have shown exceptional misjudgment last year when they passed the finance bill and the VAT changes and completely overlooked that such tax measures hurt the Kenyan economy and Kenya Airways. If the big international Gulf airlines like Emirates, Etihad and Qatar take traffic from our national airline in markets like West Africa because the billion plus shillings in taxes force KQ to charge higher fares, the responsibility rests with our parliament and our government to change that’ wrote a regular Nairobi based aviation source following the article a few days ago about locally registered domestic safari airline complaining about the added cost burden caused by VAT on spare parts. Information sourced from a regular contributor close to the national airline speaks of over 1.1 billion Kenya Shillings in VAT charges for spare parts since the new finance bill came into effect, which includes the latest spare part package which was purchased by Kenya Airways for their latest fleet addition, a Boeing B787-8 Dreamliner which will join the fleet in 9 days’ time.
Airline representatives are presently lobbying members of various parliamentary committees to draw their attention to the huge financial impact the decision to levy a 16 percent VAT on aircraft spare parts and to the implications for air transport in the country for both domestic flights as well as the cost for international flights, in particular for passengers flying with Kenya Airways from elsewhere in Africa, via Nairobi, to their final destination.
‘If Kenya Airways has to cough up way over a billion Shillings in VAT charges, that must find its way into the ticket prices because otherwise they will end up making losses. This situation cannot be sustained and in comparison Ethiopian Airlines, KQ’s main African rival, does not suffer such taxes’.
The arrival of Kenya Airways’ latest acquisition, a Boeing 787-8 Dreamliner, is only one of overall 6 such aircraft due for delivery in 2014 while at least one more B777-300ER will join the fleet, all requiring spare part packages to ensure safe operations at all times with minimum downtime, should a technical issue arise.
Aviation is often seen as a strategic national asset and in particular in countries where governments still hold significant share packages in their respective national airlines, are tax incentives written into the statute books to ensure these investments can make profits and keep the country connected. Industry observers are mixed in their views right now to what extent the lobbying will however yield results as Kenya’s exploding public sector wage bill will very likely stand in the way of a VAT exemption for airlines in favour of luxurious lifestyles and hefty pay packages for politicians who clearly no longer put the national interest before that of feeding their own fat stomachs.
Watch this space for breaking and regular aviation news from across Eastern Africa.
