Aviation policy: No to tax incentives for aviation sector

ISLAMABAD: The government has decided that it will not extend tax incentives to the aviation sector in the current fiscal year, as the Aviation Division seeks tax exemptions on new investments to make the industry viable that is crumbling under heavy taxation.

The Aviation Division presented a blue-print of its draft aviation policy to Minister for Finance and Revenue, Ishaq Dar, here on Friday. The policy proposes reduction in tax liabilities besides seeking changes in regulations. However, the Ministry of Finance and Revenue said that the question of tax relief cannot be discussed before the new budget.

The officials said that in the next financial year the government may give tax incentives on new investment in airlines.

The Minister asked the Aviation Division to incorporate proposed changes and present the policy document in front of the Economic Coordination Committee of the Cabinet in due course for consideration, according to an official handout. It indicates that even if the policy is approved in the current fiscal year, the tax incentives will not be given before the next financial year.

One of the airlines of the country got only 1.5% return on its investment in the last year, indicating that the industry was operating at very low margins.

Current predicaments

The aviation industry is heavily taxed at the moment, said Farooq Rehmatullah, former director general of Civil Aviation Authority.  He said tax on economy class ticket for a UK destination was 46.6% and the rate was only 17% if one buys a ticket to London from Abu Dhabi. He added that on tickets for domestic destinations the tax rates were in the range of 26% to 32%.

“The government should lower taxation and develop new aviation hubs,” said Rehmatuallah.  “The fundamental issue of the industry is negative growth, which has so far not been adequately addressed.”

He said the airline industry’s contribution to GDP was only 0.1% – a ratio that was 1.5% in India and 2% in Sri Lanka. Due to the high cost of tickets, per aircraft load factor was 60% to 70%, depending upon the airlines, and the industry players argue that until it reaches to 80%, they cannot be profitable.

Special Assistant to Prime Minister on Aviation Shujaat Azeem apprised the Finance Minister about salient features of the policy, saying it aimed at promoting professionalism in the aviation sector through public-private partnership.

The Policy also envisages strengthening of Pak Civil Aviation Authority (PCAA) and incentivising aviation business in Pakistan. The new policy will require start-up airlines to have a paid-up capital of Rs500 million.

Published in The Express Tribune, March 14^th, 2015.

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