Rich Kenyans get helicopter tax cuts in President Ruto budget plan

Wealthy Kenyans and politicians will import cheaper helicopters and planes after President William Ruto’s administration proposed scrapping three taxes on planes and spare parts at a time when the Treasury plans to hit the middle class with higher fuel and payroll taxes to fund Sh3.59 trillion. budget.

In the 2023 Finance Bill, the government proposes to exempt importers of aircraft, especially helicopters, from paying value-added tax of 16 percent (VAT) while scrapping the 3.5 percent Import Declaration Fee (IDF) and the 2 percent Railway Development Fee ( RDL) ).

“The main beneficiaries are buyers of aircraft weighing less than 2,000 kilograms, helicopters weighing less than two tons, and aircraft weighing more than 2,000 kilograms,” said Robert Warero, partner in charge of tax and regulation at Ichiban Tax & Business Advisory.

The tax cuts will come as a huge boost to the airline industry, which has decried the reintroduction of the fee by the previous administration of President Uhuru Kenyatta.

But they may not do well with the thousands of middle-class workers whose payrolls have come under the greatest attack as the new administration imposes additional taxes to fund an ambitious plan for pensions, healthcare and housing.

Other than airlines, Kenya Police, Kenya Power and the Kenya Wildlife Service, helicopters have also become popular with wealthy individuals and politicians.

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Wealthy Kenyans, including politicians during elections, rent helicopters and spend between Sh150,000 and Sh400,000 an hour.

Helicopter importers are now among the biggest beneficiaries of the latest changes after Treasury Minister Nguguna Ndongo proposed putting them under three-tax exemption.

Prior to July 2021, you did not attract any taxes for the purchase of certain types of helicopters, aircraft, and aircraft equipment as well as parts such as tires.

The exemption also applies to individuals seeking to charter or lease helicopters. However, in the Finance Act 2020, people seeking to charter or purchase aircraft weighing no more than or exceeding 2,000kg began paying VAT on their imports in what was intended to collect an additional Sh38.9 billion from wealthy individuals and industries.

The net weight of an aircraft is the weight when it is not loaded with passengers or cargo.

Currently, only aircraft parts such as propellers, balloons, gliders, paragliders and other non-operating aircraft are exempt from paying the 16 percent VAT when brought into the country.

Imported aircraft of less than two tons and all types of helicopters are subject to IDL and RDL, while wealthy individuals who may import these birds are targeted for their convenience.

Industry players have welcomed the tax cuts as a major boost to tourism.

“The ever-increasing number of taxes is negatively affecting the air transport sector as Kenya is the only country regionally that imposes many taxes on aircraft, spare parts and fuel, which makes the industry uncompetitive and unsustainable,” said the CEO of the Kenya Federation of Airline Operators. Officer Liz Alavanzi on Thursday.

“Over the years, the association has petitioned the government to revise the tax system in order to provide much needed relief to players in the industry in order to give them a fighting chance in the face of fierce regional and global competition,” Aluvanze added.

Cap Mercy Macau, Founder and President of Young Pilots Club in Africa, said that reducing the cost of importing spare parts and light aircraft is a great benefit for Kenya because the cost of training will decrease.

“It would enhance tourism and sports aviation, and develop the general aviation sector through recreational aviation, thus creating job opportunities,” she said.

In the 2020 Finance Act, the Kenyatta administration has also introduced a 25 percent import duty on the import of helicopters, a move that has pushed up the cost of purchasing these aircraft.

The move was part of the Treasury’s goal to eliminate several exceptions as advised by the International Monetary Fund.

According to former Treasury Minister Okur Yatani, the country received no benefit from these aircraft exemptions.

Mr. Yatani noted that instead of using these helicopters for humanitarian purposes such as transporting patients from remote areas, they have been used by wealthy individuals and companies for transportation.

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In 2022, Kenya imported aircraft and related equipment worth Sh15.1 billion, down from Sh17.9 billion in 2021, as importers grappled with high costs exacerbated by a shortage of semiconductors.

Data from the 2023 Economic Survey revealed that the total number of aircraft registered last year decreased by 1.5 percent to 726 compared to 2021.

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