State eyes tax breaks for air tickets, aircraft parts

Domestic and international airfares in Kenya remain very high, with taxes and fees accounting for up to 24 percent, leaving domestic airlines like Kenya Airways unable to compete in the cheap market.

“For example, materials needed for maintenance, repair and refurbishment are not only subject to a 25 percent import tax and value-added tax, but also a 3.5 percent import declaration duty and a railway development tax,” states the new aviation policy under the Ministry of Transport.

“As a result, the additional cost associated with importation, which is later passed on to the end customer, hampers the country’s competitiveness in business, putting Kenya in the expensive pool of maintenance repairs and refurbishments in the region.”

Airlines pass some of their costs on to passengers, with taxes and fees accounting for up to 24 percent of airfares, according to a survey by the East African Business Council (EABC).

An early booked domestic flight from Nairobi to Kisumu on budget airline Jambojet costs around Sh7,100 with fees and taxes amounting to Sh1,500 of the ticket, or 21 percent.

Passengers pay Sh600 domestic departure fee, while regional and international departure fees are higher at Sh6,467 ($50) each.

However, Kenya exempts air travelers from other taxes such as transport and arrival taxes.

However, aviation duties differ from taxes in that they are levied specifically to recover the costs of providing civil aviation facilities and services as defined by the International Civil Aviation Organization (ICAO).

Players in the Kenyan aviation sector face multiple taxes, including Air Passenger Service Charge (APSC), Air Navigation Services Charge (ANSC), income tax and fuel tax levied by the Kenya Pipeline Corporation (KPC).

The new policy document notes that part of the tax burden on the aviation sector has been used to subsidize alternative and competing carriers such as railways.

Lower taxes would limit the transfer of funds outside the civil aviation system, boosting airlines’ cash flow and giving them more resources to invest.

Kenya Airways (KQ) has previously been cited as having the most expensive ticket on some routes among airlines operating in Africa, charging higher fees on average than airlines such as Ethiopian Airlines, South African Airways and Air France.

The African Competition Forum (ACF) – a gathering of competition authorities in 24 countries on the continent – said the national carrier risked losing market share to cheaper rivals such as Ethiopian Airlines and new entrants including Uganda Airlines.

The airline has the highest average passenger price per kilometer (APPK) for all its domestic, regional and international routes.

KQ had higher airfares on most routes where it faced competition, although there were fewer instances where competitors charged higher fares.

The proposed cuts are in line with the International Civil Aviation Organization, which recommends significant tax cuts as an incentive to increase demand for air travel.

The International Civil Aviation Organization defines aviation taxes as fees used to raise state revenues applied for purposes other than aviation.

“This annual tax burden is likely to impact not only selected sectors, but the competitiveness of air travel as a whole. Furthermore, the Kenyan civil aviation system is forced, in some cases, to finance the cost of providing facilities and services for alternative modes of transport such as trains through Rail Development Levy (RDL).

The government says it is also seeking measures to ensure that certain Kenyan airlines are not exposed to double taxation as well as to end excessive taxation of the industry.

Airlines incur other fees outside of customs fees, including landing and parking fees, aircraft handling fees, boarding bridge fees, and road fees.