The federal excise duty (FED) imposed on air tickets via the Finance Supplemental Bill 2023 revisions, has raised serious concerns among customers and travel traders.
Former chairman and executive board member of the Travel Agents Association of Pakistan (TAAP) Nadeem Sharif lamented that, “The COVID-19 pandemic hit air travels the hardest and just when the business started recovering, the government slapped FEDs. This may result in paradoxical situation.”
“The move may discourage travellers and resultantly the government will lose whatever revenue it was making before the taxes,” he warned, adding that “British airline Virgin Atlantic has already informed the government of its decision to halt operations from Pakistan in May as the airline is not being able to remit profits to its parent company due to a dollar shortage.”
Explaining that this imposition of duty on air fare will result in a reduction in business class travel to Pakistan, the TAAP board member said, “Only those multinational companies that consider it compulsory for their Chief Executive Officers and other higher management to travel in business class will keep travelling.”
Pakistan International Airlines (PIA) is also facing problems due to the overall economic meltdown, with its financial costs doubling due to increased interest rates, said the airline’s spokesperson.
Based on foreign areas and destinations, the government has established new FED rates for first class, business class, and club class airline tickets. The change in price will be applicable on tickets issued on or after the date of commencement of the Finance (Supplementary) Law 2023.
“While this was not recommended by the International Air Transport Association (IATA), the Board of Airlines Representatives In Pakistan (BARIP) along with the Federal Board of Revenue (FBR) used IATA’s Traffic Conference Area (TCA) to bifurcate the new tax rate,” said an IATA official.
The rate of FED on the aforementioned tickets for IATA TCA-1, that is the North, Central, South America and environ, will be Rs250,000 under the first slab.
According to the second slab, the FED rate on the aforementioned tickets for IATA TCA-2, which is the Middle East and Africa, will be Rs75,000. The FED for IATA TCA-2, which is Europe, will be Rs150,000. And the FED rates on the tickets for IATA TCA-3, compromising of the Far East, Australia, New Zealand and Pacific Islands, will be Rs150,000 under the third slab.
Instead of putting a 20% tax on international air travel, the Senate recommended to the National Assembly that the Finance (Supplementary) Bill, 2023, be changed to specify a specific amount of tax for each destination.
Before, the government raised FED on business, first, and club class airline tickets under the Finance Supplemental Bill 2023, the FED was suggested to be equal to the higher of 20% of the total price of a ticket or Rs50,000 per ticket.
In response, the Association of Physicians of Pakistani-descent of North America (APPNA) in a statement noted that the imposition of FED of Rs250,000 ($950 approximately) on premium class air fare between Pakistan and North America were a cause of great concern and dismay. APPNA represents over 17000 doctors of Pakistani descent living in the United States and Canada.
“Apart from being important contributors to foreign exchange remittances, they also serve to enhance Pakistan’s image and promote its interests in North America in their personal capacities,” stated Arshad Rehan, President of APPNA.
“The services of these physicians to Pakistan are numerous and very well known,” he said, adding that, “In the post Covid-19 world, air travel has become expensive as it is. Our board members frequently visit Pakistan for familial and professional matters. The decision to impose this exorbitant FED on air fare will impact them adversely. We are afraid that they might be forced to cut back on their travels to Pakistan.”
The APPNA president further lamented that, “Pakistan is going through an economic crisis and needs to increase its revenues. We do not understand why overseas Pakistanis, who have always helped the motherland selflessly, should suffer.”
“We are sceptical of the government’s assessment that the imposition of this FED on air fare will raise additional revenues. In fact, we believe the opposite; this will only discourage travel to Pakistan, particularly business travellers, thus depriving the country of whatever revenues it was making before,” emphasised Rehan.
“Less business travel will result in lower investment in Pakistan and decreased inflow of foreign exchange that these travellers bring in even for personal use during their visits,” he said.
“Instead of burdening overseas Pakistanis, the government should explore other avenues to improve its finances such as cutting costs, cracking down on tax evaders and privatising loss-making state-owned enterprises. The FED should be levied only on resident non-filers of income taxes or those whose travel patterns are not commensurate with their tax returns,” he suggested. The APPNA president urged the government to withdraw the ‘astronomical raise in FED on airfares’ and said, “We hope that this unjustified, arbitrary decision is reviewed soon and reversed,” the statement quoted him as saying.
Published in The Express Tribune, February 28th, 2023.
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