The government is mulling over prolonging value added tax (VAT) exemption on “Air Charter Services” for the next four years in its latest goodwill to spur aviation and tourism industries.
Once it goes through the Parliament, VAT exemption on “Air Charter Services” will stay through to June 30, 2026, offering a ray of hope to the aviation and tourism players to grow business and leapfrog other economic sectors.
Aviation and tourism are inherently interrelated, as tourism depends on aviation to bring in visitors, and aviation banks on tourism to generate demand and fill seats.
The Tanzania Air Operators Association (TAOA) board Chairman, Captain Maynard Mkumbwa has, on behalf of the aviation industry, overwhelmingly praised the measure of extending the VAT tax relief, expressing the aviation industry appreciations to the government with the considerate President Samia Suluhu Hassan, at the helm.
TAOA is the member base association that aims at fostering legal and responsible development of the aviation industry by ensuring safety, efficiency, regularity and economic operations.
It provides a common platform for the promotion of best practices and it engages in effective advocacy with the government through responsible authorities.
The association provides a range of services to its members such as taking part in policy formulation and reforms; providing access to relevant industrial information on travel, tour and tourism; and coordinating partnerships and business linkages between members and relevant players in the national economy.
“My thanks have no boundary going to our considerate government under the President, Samia Suluhu Hassan. The reinstatement of VAT on air charter services was essentially shooting ourselves in the foot,” said Captain Mkumbwa who is also the Managing Director of Coastal Aviation.
Traditionally, air charter services were treated as exempt supplies as provided under both the VAT Act, 2014, and 1997, respectively. However, the Finance Act, 2022, provided for this exemption to end with effect from 31st December 2022, in a move to expand the VAT base.
As it happened, the Finance Act, 2022, amendment was squarely challenged by the aviation players through their high-profile association – TAOA, citing an immediate decline in advance bookings and its consequent negative impact on the tourism industry as vivid examples of ripple effects of the removal of the exemption.
TAOA Chief Executive Officer, Ms Lathifa Sykes, said the move to remove VAT exemption was counterproductive to President Samia’s initiative through her recently launched Tanzania The Royal Tour Film to promote tourism industry and investment.
The Tanzania Royal Tour film is part of Dr Samia’s ambitious commitment to achieve one of the pledges of the ruling CCM’s 2020-2025 General Election manifesto to spur the tourism industry for it to create meaningful employment and leapfrog other economic sectors.
Indeed, the CCM manifesto clearly stipulates that tourism will attract five million tourists who will leave behind nearly 6.6 billion US dollars by 2025 with expected massive multiplier effects to a critical mass of common folks in Tanzania, particularly women and youths.
“The removal of VAT exemption on air charter services was countering what President Dr Samia and the ruling party is preaching. Aviation industry has been VAT exempt for years for a reason,” the TAOA CEO noted.
TAOA Vice-Chairman Mr Mrisho Yassin said the decision would go a long way in driving the two intertwined industries of aviation and tourism to a great height.
A Bill supplement issued on 20th January 2023, proposes to extend the VAT exemption on the supply of air charter services to 30th June 2026, implying to repeal the removal of the amnesty on 30th December 2022.
Part IX proposes to amend the VAT Act, Cap 148, whereby item 22 of the schedule is amended so as to extend the VAT exemption on air charter services in order to facilitate growth trajectory in the tourism industry.
The Bill Supplement (“the Written Laws (Miscellaneous Amendments) Act, 2023”) proposes to reinstate the exemption and postpone its removal until 1st July 2026.
This implies that it has been recognised that the proposed removal of the exemption would have serious negative implications on the tourism industry.
Tourism is Tanzania’s largest foreign exchange earner, contributing an average of $2.6 billion annually, which is equivalent to 25 per cent of all exchange earnings, the government’s data indicate.
Tourism also contributes to more than 17 per cent of the national gross domestic product (GPD), creating over 1.5 million jobs.
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