Airlines deserted over VAT

Fiifi-Kwetey, Minister for Transport

More passengers are opting to travel by road to major capitals in the country, as air fares remain elevated due to the imposition of a 17.5 percent Value Added Tax (VAT) on domestic air transport in July 2015.


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 passngers per month as at December 2015.

The drop in passnger numbers has forced airlines to continue absorbing huge loses and the airports operator — Ghana Airports Company Limited (GACL) — unable to generate as much revenue from the standadard GHC5 airport tax.

The Ghana Revenue Authority’s (GRA) revenue from imposition of the VAT has ebbed and flowed with the passenger volumes, given that the VAT is a consumption tax that is passed on to the consumer.

The Ministry of Transport, Ghana Airports Company Limited, State Enterprises Commission and the Parliamentary Select Committee on Transport, have all called on government to review the tax downward — but nothing has happened yet.

After a technical meeting between the Ministry of Transport, which has an oversight responsibility of the aviation industry, and Ministry of Finance last year, a proposal was tabled to suspend the 17.5 percent VAT on domestic air travel. Nonetheless, the 2016 Budget and Financial Statement of government presented to Parliament was silent on the issue.

“The point we are making is: either give domestic airlines a five-year moratorium or introduce the VAT on domestic air travel gradually — not the immediate full impact of the 17.5 percent,” Mr. Selby told the B&FT.

Another pertinent issue that requires the attention of policymakers if the domestic aviation sector is to grow, is the high price of aviation fuel. “The taxes embedded in aviation fuel make the commodity so expensive in Ghana that international airlines seek options in other West African countries.

“Policymakers must also take a second look at the cost build-up of the specialised aviation fuel –ATK– and review the inherent taxes to make the price more competitive, to give the infant domestic airlines some respite and help grow the industry,” Mr. Selby said.

Raphael Kuuchi-International Air Transport Association (IATA) Vice President for Africa said: “One challenge I think needs to be addressed if Ghana’s aviation is going to move to the next level is the high fuel price. The fuel price in Ghana is not competitive compared to its neighbours. Because of this high fuel price, many of the airlines that are flying in don’t pick up fuel from here.

“They rather fly to the next country and pick up fuel. So we are losing out on revenues that these airlines would otherwise be paying to oil suppliers in the country. Because the fuel price is high, it is also a disincentive for some airlines wanting to come to Ghana. They don’t want to come because fuel is too expensive.”

(culled from www.ghanaweb.com)