Is the aviation sector about to fly higher?

Dar es Salaam. Strong government support is pivotal for the accelerated recovery of the aviation sector from the impact of the Covid-19 pandemic in the country.

As an industry that is trying to recover from the turbulence caused by the pandemic, the aviation sector is pinning its hopes on the budget that is slated to be presented by the Finance Minister, Dr Mwigulu Nchemba, on June 14, 2022.

The aviation sector witnessed a series of highs and lows with effect from April 2020 when the pandemic hit the world with full swing and is now enduring the consequences of a third wave that has been triggered by the omicron variant

Against this backdrop, the aviation sector is looking forward to the budget with the hopes of receiving boosting measures including both fiscal and non-fiscal incentives to steer the sector on the path of economic revival.

The 2021/22 financial year’s budget was not in favour of the aviation sector as no reforms were made in rescue of the sector.

From the next financial year (2022/23), the industry is at least expecting the introduction of measures targeted at augmenting the liquidity of airlines, ground handlers and other airport operators.

The measures include exemption of the 18 percent Value Added Tax (Vat) on leased aircraft, aircraft parts, aircraft engines and maintenance on domestic transactions.

The list of measures also include scrapping the Tanzania Tourism Business Licence (Tala) that on the annual basis stands at $5,000 and $2,000 for foreign airlines and domestic ones respectively.

Again stakeholders expect the government will consider removing double payment of Tanzania Civil Aviation Authority (TCAA) Training Fund and Skills Development Levy (SDL) Fund, as well as tax exemption on cold room material handling equipment for perishable goods.

On top of that, aviation stakeholders are expecting the review of unfriendly policies that subject subsidiary companies to the payment of Capital Gain Tax (CGT) in case there is change in the ownership of the holding company

Tanzania Air Operators Association (Taoa) executive secretary Lathifa Sykes told The Citizen over the weekend that VAT was making the sale of aircraft, aircraft parts, aircraft engines or aircraft maintenance in the domestic market more expensive than in the outside market.

Again, she said, it was discouraging development of maintenance, or sale of aircraft within the domestic market because it makes transactions comparatively more expensive.

On the question of Tala, Ms Sykes said air operators should not be required to pay it because they operate under the ministry of Transport and they have to obtain the general business license and an air service license for standard $2,500 (about Sh5.8 million).

The TCAA Training Fund (section 74 of the Civil Aviation Act) constitutes double payment for training because operators must also pay the SDL.

“Double taxation makes the costs of doing business high and thus making flying within Tanzania costlier than flying to Europe, say the UK ,” she said.

“As it is, it is our hope that the government will do something so that we could at least get a breathing room.”

Air operators are also of the expectation that the government will do something with the burdensome fees and charges.

They say it could sound better if the government will review the airport landing charges and reduce them to affordable levels in consultation with the air operators.

On top of that airlines believe that there will be no increase in any of the current fees given the still persistent Covid-19 adverse effect on the industry.

Currently, airlines are subject to pay charges for landing, parking, passenger services, departure and navigation.

The landing charge per 1,000 Kg at Dar es Salaam, Kilimanjaro, Zanzibar and Pemba airports stands at $5 (about Sh11,500 at the prevailing exchange rate), according to the Tanzania Airports Authority (TAA).

Parking charges for aircraft of up to 20,000 Kg stand at Sh1, 000 per 12 hours and $5 (about Sh11, 500) for locally registered airlines and foreign ones respectively.

Passenger service charge stands at Sh10, 000 and $40 (about Sh92,000) for domestic and international flights respectively.

Departure taxes for domestic and international travellers are Sh13, 000 and $49 (about Sh112,700) in that order.

“It is our expectation that the government will reduce regulatory burden and costs for doing business,” said Ms Sykes.

Taoa was also of the expectation that the government will allow temporary importation of aircraft into the country under a favourable Temporary Importation Programme.

On that, the country’s excess aircrafts are imported from and enter into an agreement with Tanzania as stipulated in the International Civil Aviation Organisation ( Icao) Articles 83 bis Article 12, 30, 31, and 32(a) of the convention.

These aircraft should in turn be granted local operator status and be afforded with favourable rates on strategic tourism sites

“This will ensure the consistent availability of the products to tourism and enhance competition with our neighbours,” reads a part of the Taoa’s document availed to The Citizen.

Current regulatory environment in the country does not recognise these seasonal variations, and by default does not provide strategic exemptions on temporary importation of aircraft and qualified personnel during the busy season.

The chief executive officer with a ground handling company, Swissport Tanzania, Mr Mrisho Yassin, is expecting the government to consider applying CGT only on direct sale of shares or assets, and not on the share subscription of the entity in Tanzania.

Going by the Section 56 of the Income Tax Act 2004, if there is change of ownership in the holding company then there will be deemed to have been change of ownership in the subsidiary company, although no change of ownership of shares takes place in the subsidiary.

“This is unacceptable because with the current policy, shareholders find it expensive to acquire businesses with operations in Tanzania,” lamented Mr Yassin while speaking to The Citizen over the weekend.

He was of the view that the change should only affect indirect acquisition of shares where there is an interest in Tanzania.

On the question of cold room material handling equipment, the Swissport boss said, like in cold room equipment, ground handlers should enjoy tax exemption as well.

“Being not exempted, it makes investment in the field (cold room) very expensive,” stressed Mr Yassin.

Referring to how the aviation sector was hit by Covid-19 pandemic, he expressed his optimism that the government will provide a provision on how to deal with the likes of calamities.