The Kenya Association of Air Operators (KAAO), Chief Executive Officer Liz Aluvanze warned that the cost of flights may go up following the introduction of VAT on operation services in the Finance Bill 2024.
Speaking during an interview with Spice FM on Tuesday morning, Aluvanze explained that the proposed introduction of taxes on leasing, equipment and maintenance of aircraft will have an adverse effect on the industry with the cost expected to be transferred to travellers.
According to Aluvanze, the Bill proposes to introduce VAT on airline operations, a situation she described as being against international best practices since in most countries, the service is zero-rated.
While the proposal as contained in the Finance Bill 2024 is not imposed directly on ticket purchasing, the cost is expected to trickle down as operators spread costs.
Aluvanze projected that with the introduction of the new taxes, the prices of flights with domestic registered airlines will go up by 30 to 40 per cent.
The Finance Bill, 2024 proposes introducing VAT on aircraft with a take-off weight of 2000- 15000 kilograms which affects most of the operators registered in Kenya .
The operators have warned of reduced competitiveness of Kenyan airlines in comparison to East African countries given that the rest have tax incentives that would be attractive to airline operators.
Additionally, Aluvanze remarked that Kenya is a regional hub for aircraft maintenance companies having close to 88 operators registered in the country.
Following the new proposals the new taxes proposed on maintenance equipment will also see these operators affected and potentially affecting Kenya's position as a market leader in this field.
According to the CEO, the air transport ecosystem and the revenue garnered from the tourism industry contributes to the economy approximately Ksh 400 billion (Ksh 3.2 Billion dollars).
The Air operators' warning follows that of the Kenya Association of Manufacturers (KAM) which stated that Kenyan manufacturers may be forced to exit the market due to taxes introduced in the finance bill.
The lobby group warned that some of its members may opt for other East African countries with favourable taxation and business policies.
