Suspend VAT on airfare now – SEC

Dr. Camynta Baezie, Executive Chairman of the State Enterprises Commission, has called for immediate suspension of the 17.5 percent VAT on domestic air travel, which has been blamed for the low patronage of air transport services in recent times.

Since imposition of the VAT in July, passenger throughput has reduced by more than 20 percent.

“The State Enterprises Commission would like to bring to the attention of the President, sector ministry and more importantly the Ministry of Finance that the high cost of domestic flights is something that has been said over and over again.

“We need to reduce the airfares, and to do that we think that government needs to take out the 17.5 percent VAT and remove the taxes on aviation fuel. Taxes are meant to benefit the people and removal will lead to increase domestic passenger travels, create jobs and hence employment for the benefit of the very people that we are imposing the taxes on,” Dr. Baezie said at the Annual General Meeting (AGM) of the Ghana Airports Company Limited in Accra.



The comments follow similar calls by operators and the sector ministry for the Ministry of Finance to review the said taxes, following a drastic reduction in the number of people travelling by air.

Attempts by the Ministry of Transport to have the Finance Ministry review 17.5 percent VAT on domestic air travel have been met with a passive response from the Finance Ministry.

The 2016 Budget and Economic Policy Statement of government presented to Parliament last week was also conspicuously silent on the suspension of VAT on domestic airfares.

The Ghana Revenue Authority (GRA) in July implemented the 17.5 percent Value Added Tax (VAT) approved by Parliament in the 2013 budget amidst protest from domestic airlines, who are struggling to stay in business.

Following a series of petitions to the Ministry of Transport by domestic airlines, the supervising ministry formally engaged the Finance Ministry to see how best to address concerns of the industry.

The domestic airline industry is relatively young, given that those currently operating flights from Accra to the four major domestic destinations are just three years old.

The initial buzz that characterised domestic air travel and saw many more people choose air travel over road, after licencing more operators, has since been contained by challenging economic conditions which have seen a significant reduction in the purchasing power of consumers.

With the rising cost of operation for airlines, the imposition of 17.5 percent VAT on domestic air travel has led to a hike in airfares.

The current load-factor is relatively poor, irrespective of the fact that Antrak has suspended its flights for operational reasons. With increasing cost of operation, none of the domestic airlines currently operating is able to cover their direct operating costs (DOC) -- consisting of maintenance cost, ground handling, and fuel.

For a return flight between Accra and Kumasi, domestic carriers need up to about 70 percent load factor to cover their DOC -- a figure mostly not achieved except for weekends, when passenger numbers inch up close to 70 percent.