Kenya’s Air Operators Warn of Rising Flight Costs by 40% Due to Proposed VAT in Finance Bill 2024
The Kenya Association of Air Operators (KAAO) CEO Liz Aluvanze cautioned that flight costs might rise due to the introduction of VAT on operation services as proposed in the Finance Bill 2024.
During a Tuesday morning interview with Spice FM, Aluvanze highlighted that imposing taxes on aircraft leasing, equipment, and maintenance will negatively impact the industry, with costs likely being passed on to passengers.
Aluvanze stated that the Bill’s proposal to introduce VAT on airline operations deviates from international norms, where such services are typically zero-rated.
Though the Finance Bill 2024 does not directly tax ticket purchases, the increased costs are expected to be distributed among operators and ultimately affect travelers.
Aluvanze predicted that the new taxes could cause domestic flight prices to increase by 30 to 40 percent.
The Finance Bill 2024 aims to implement VAT on aircraft weighing between 2,000 to 15,000 kilograms, which includes most Kenyan operators.
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Operators have expressed concerns that these taxes will reduce the competitiveness of Kenyan airlines compared to other East African countries that offer tax incentives.
Aluvanze also noted that Kenya, a regional hub for aircraft maintenance with nearly 88 registered operators, could see its market leader position threatened by the new taxes on maintenance equipment.
The CEO emphasized that the air transport ecosystem and tourism industry contribute approximately Ksh 400 billion (USD 3.2 billion) to the economy.
The warning from air operators echoes concerns from the Kenya Association of Manufacturers (KAM), which indicated that new taxes might force Kenyan manufacturers to leave the market.
KAM warned that some members might relocate to other East African countries with more favorable tax and business environments.
Kenya’s Air Operators Warn of Rising Flight Costs by 40% Due to Proposed VAT in Finance Bill 2024