The Kenya Association of Air Operators (KAAO) has raised concerns about the potential removal of Value Added Tax (VAT) exemptions on the aviation sector as outlined in the Finance Bill 2024.

In a statement released on May 20th, KAAO noted that these exemptions, which have been crucial in stimulating progress in the industry, are now at risk of being eliminated, posing a threat to the progress made in recent years.

The exemptions targeted for removal include:

• Aeroplanes and other Aircraft on unladen weight exceeding 2,000 kgs but not exceeding 15,000kgs of tariff numbers 8802.30.00
• direction-finding compasses, instruments, and appliances for aircraft.
• Spacecraft including satellites, suborbital and spacecraft launch vehicles of tariff numbers 8802.60.00.

The potential removal of these VAT exemptions is anticipated to have far-reaching consequences, particularly in terms of increased acquisition costs for airlines and operators.

Impact of the Tax Exemption Removal

The Association warned that the elimination could potentially impede the sector’s growth and have adverse effects on services such as air travel, cargo operations, and maintenance.

“This, in turn, will trigger escalations in air travel and charter services, cargo services, aerial services, unmanned aircraft vehicle (UAV) services, balloon operations, aircraft repair and maintenance and training prices,” said KAAO.

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Furthermore, KAAO noted that proposed abolition of the exemption on hiring, leasing, and chartering aircraft poses a major risk of escalating operational costs.

This could result in reduced accessibility and affordability of aviation services, and affect sectors such as tourism, trade, and emergency response that rely on aviation.

Also, the removal of exemptions for spacecraft and launch vehicles is expected to hinder investment in space related endeavors.

This according to KAAO would curtail opportunities for innovation and collaboration.

Also Read: Businesses Oppose Ksh 2M Tax Penalty Proposed in Finance Bill 2024

The Association’s Plea to Govt

The association stressed the importance of preserving these exemptions to maintain Kenya’s regional competitiveness, support the advancement of the aviation sector, and uphold the country’s position as a key aviation hub in the region.

KAAO urged policymakers to reconsider the proposed amendments, emphasizing the need to safeguard these critical exemptions in alignment with international recommendations and regional tariff structures.

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