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Business News of Friday, 6 May 2016

Source: B&FT

Transport minister justifies airfare tax

The Transport Minister, Fiifi Kwetey, has said that imposition of a 17.5 percent Value Added Tax (VAT) on domestic air travel is a temporary measure meant to help plug the country’s budget deficit.

He indicated that the tax, which has become a litigious issue in the air transport business, will be reviewed once the country’s fiscal position has improved.

“We have started discussions on that. It has been brought to the attention of the President.

"There is a consensus that the competitiveness of our aviation industry must be secured.

"But sometimes certain short-term financial difficulties can compel certain decisions to be taken, and some of the decisions which have been taken relating to the VAT and so on were done with a view to blocking immediate short-term difficulties that have to do with the budget deficit and so on,” Mr. Kwetey said.

The Transport Minister was speaking on the sidelines of a tour of Ghana Airports Company Limited’s (GACL) on-going developments at the Kotoka International Airport enclave in Accra.

The country made progress on fiscal consolidation in 2015 when the fiscal deficit was narrowed to an estimated 7.2% of GDP from 10.2% in 2014, largely on account of the US$918million Extended Credit Facility arrangement with the International Monetary Fund (IMF).

According to this year’s budget presented by Finance Minister Seth Terkper, government is aiming to cut its budget deficit from 7.3 percent to 5.3 percent of Gross Domestic Product (GDP).

Public debt to GDP ratio remains elevated at 72 percent, well above the rating agency Fitch’s 'B' median of 47 percent

The Ghana Revenue Authority (GRA) in July 2015 asked all domestic airlines to start charging 17.5 percent VAT on the gross airfare which already includes a GH¢5 airport tax from Accra to all regional destinations: Takoradi, Kumasi, Sunyani and Tamale.

The consumption tax’s imposition has led to a steady decline in domestic passenger throughput; since more passengers are opting to travel by road to major capitals in the country as the price of air tickets remain high.

Latest statistics show a very significant slump in 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 losses, and the airports operator -- Ghana Airports Company Limited (GACL) – is unable to generate as much revenue from the standard GHC5 airport tax.

“We have brought this to the attention of the Finance Ministry and I think there is an understanding that we need to have this resolved. I am having a full-scale discussion with the Finance Minister, and this is one of the major issues we are going to discuss.

“We need to look at the competitiveness of the country and not just a short-term issue of revenue. We have got broad support all the way to the top. So it is one issue we are confident we can resolve,” Fiifi Kwetey said.

GACL’s ongoing projects at the KIA include construction of a new terminal, known as Terminal 3, and expansion of the existing international terminal (T2) to process hundreds of passengers at a time.

Mr. Charles Asare, Managing Director of the GACL said: “The on-going projects are funded by loans secured on the strength of the company’s balance sheet”.

The new terminal is designed to accommodate five million passengers a year, and will process 1,250 passengers an hour. It will also have six boarding bridges.

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