Scrap VAT on Aviation Sector

Players in Ghana’s domestic aviation sector have renewed their call on government to withdraw the 17.5 per cent Value Added Tax (VAT) imposed on domestic air fares two years ago.

According to them, the introduction of the tax has led to a 40 per cent drop in patronage of flight services across all routes.

“The market has shrunk so much and it keeps shrinking; customers keep complaining about the fares,” lamented Chief Executive Officer of Starbow Airline, Mr James Antwi.

Mr Antwi told this paper that the players were sending a reminder to government to drum home their concerns. 

“We are not getting the numbers that will make us profitable and our airline’s cost of operations has gone up sharply because we are unable to exhaust our seating capacity” he disclosed.

According to the Starbow CEO, “to grow the market the tax should be withdrawn; we are hoping that government will listen to our pleas and remove the tax completely so we can stay in business.” 

One way air fare from Accra to Kumasi is GH¢315 inclusive of the VAT. Without the VAT however, passengers would however pay GH¢270.

Ghana’s domestic aviation sector has been reeling under high operational costs, worsened by high taxes and the high costs of jet fuel which has compelled some service providers to fuel their aircraft in neighbouring Nigeria.

The depreciation of the local currency against the dollar and other major trading currencies has continued to affect the importation of spare parts.

Statistics from the Ghana Airports Company Limited (GACL) reveal a significant slump in domestic passenger throughput from an average of 55,000 passengers per month in 2014 to just under 20,000 passengers per month as at December 2015.

The drop in passenger numbers has forced airlines to continue absorbing huge loses.

Government recently announced a 20 per cent reduction in the price of aviation fuel but industry players insist a withdrawal of the VAT would better serve the interest of all stakeholders.

“At the end of the day, if we look at our salaries and other payments that we have to meet, we realise that our revenues have gone down drastically,” Mr Antwi noted.

The difficult aviation terrain in Ghana has seen the exit of three domestic players, Antrak Air, Fly540 and CityLink leaving only two, Starbow and Africa World Airlines (AWA). 

The imposition of the 17.5 per cent Value Added Tax (VAT) by government in 2014 sent airfares through the roof increasing by over 40 per cent.  

According to Mr Antwi, the industry have in the past written to government to review the VAT downwards but have not received any positive response.

“There has been no formal response to our concerns except to say that we have heard that the issue is under discussion and that the authorities will get back to us; but as at now nothing has happened,” he disclosed.

Air fares will come down as soon as the tax is withdrawn; the Starbow boss told this paper.

“If the tax is removed, it will have a direct impact on tickets across the routes. We are ready to reduce fares as soon as the tax is removed,” he stated.

Chief Operations Officer (COO) for AWA, Captain Samuel Thompson said “if we want to stimulate domestic travel then we should be able to do it at a price people would be able to afford but charging 17.5 per cent on tickets is putting us out of the reach of many.” 

Captain Thompson pointed out that the GH¢45 component of the tax “means a lot of money to many people.” 

It will be recalled that the Vice President of International Air Transport Association (IATA), Mr Raphael Kuuchi had earlier in an interview told Business Finder that there was need for government not to treat the aviation industry as an easy target for taxation while providers of air transport services must not treat it as a cash cow.

According to him, investors will only invest in an industry if they can see the potential for positive returns. 

“To attract more capital inflow, reduce taxes and charges on infrastructure and fuel, recognize aviation as a socio-economic enabler and provide the appropriate infrastructure,” he pointed out.

“A transparent industry supported by government policy that fosters development and is underpinned by a regulatory framework is crucial to the growth of the aviation industry,” he said.