Aviation operators say tax waiver on aircraft parts would benefit all

Summary: 

• Importing aircraft in FY2022-23 is going to be cheaper, but aviation operators say exemption on a broader range of aeroplane parts would be useful

• Govt proposed to reduce customs duty on two aircraft-exclusive parts – pneumatic tyres and sparking plug – while aviation operators demanded waived duty on many other parts

• Aviation operators look forward to a tax waiver on aircraft parts in line with the duty structure of neighbouring countries and other countries

• Customs duty is among the highest in the world e.g. there is no fee for landing parking for up to 80-seat aircraft in India

• Stakeholders say the aviation sector will directly or indirectly benefit from the existing development measures as the allocation is primarily targeted for upgrading the infrastructures of the aviation and tourism sectors

Importing aircraft in FY2022-23 is going to be cheaper, thanks to the proposed advance tax exemption in the budget, but aviation operators say exemption on a broader range of aeroplane parts would be more useful for the sector.

The government proposed to reduce customs duty on two aircraft-exclusive parts – pneumatic tyres and sparking plug, while aviation operators demanded waived duty on many other aircraft parts.

"We welcome the advance tax exemption for aircraft. But the thing is we do not import aircraft regularly, "Mofizur Rahman, secretary-general of Aviation Operators Association, Bangladesh (AOAB) told The Business Standard. 

"Maybe I will purchase an aircraft in three to five years, but we need the parts frequently and they are extremely costly," added Mofizur Rahman, who is also the managing director of NOVOAIR.

"Very little of our demands were reflected in the proposed budget," he said, adding, "There are hundreds and thousands of parts in an aircraft and naturally these are not listed in the tax guide, which mentions only a handful of parts that have duty exemption."

He further said that they were looking forward to a tax waiver on aircraft parts in line with the duty structure of neighbouring countries and other countries in the world.

Finance Minister AHM Mustafa Kamal, in his budget speech, proposed a customs duty reduction from 5% to 1% on pneumatic tyres, while duty on sparking plugs used for aircraft and helicopter engines was proposed to be reduced from 10% to 1%.

How much will the operators benefit from the advance tax exemption?

"In the last two years, 5% advance import tax was added for aircraft. To understand in plain terms, say we pay 22$ million for a particular aircraft, for which India pays $20 million," Md Abdullah Al Mamun, managing director of US- Bangla Airlines, said at a recent seminar titled "Prospect of Bangladesh as Regional Aviation Hub" in Dhaka.

"If aircraft were sourced under a lease, a 15% Vat and another 15% tax in other areas had to be paid," he added.

The advance tax exemption will relieve the burden of VAT for bringing in aircraft under a lease, Md Kamrul Islam, general manager (PR), US-Bangla airlines told TBS.

ATM Nazrul Islam, an aviation expert told The Business Standard that once the proposed budget is passed, the $2 million waivers for each aircraft import will be a huge relief for the sector.  

What the AOAB proposed 

In a pre-budget meeting with the NBR, the AOAB proposed, the withdrawal of 15% VAT currently levied on aeronautical and non-aeronautical charges and VAT on security and development fees; reducing the existing corporate tax in the aviation sector from 30% to 20%, and withdrawal of 10% advance income tax and 15% VAT on domestic and foreign training expenses.

In addition, 25% SD and 15% VAT are applicable on the transport of chartered aircraft and helicopters since the previous budget. AOAB had proposed to slash the SD to 15% and withdraw the VAT entirely.

However, these demands were not met.

US-Bangla Airlines MD Abdullah Al Mamun said, "Customs duty on aviation is low in our neighbouring countries. Our custom duty is among the highest in the world."

He also pointed out that in India there is no fee for landing parking for up to 80-seat aircraft.

"They waived it to reduce the pressure on the road by creating air connectivity. But it is growing here every year," he added.

Increased budget for Civil aviation, and tourism to facilitate the sector 

The proposed budget allocation for the ministry of civil aviation and tourism is Tk7,004 crore for FY23; which is Tk2619 crore more than the revised budget for the current FY.

The allocation for the ministry was Tk4,385 crore in FY22 from a proposed allocation of Tk4,032 crore.

Stakeholders say the aviation sector will directly or indirectly benefit from the existing development measures as the allocation is primarily targeted for upgrading the infrastructures of the aviation and tourism sectors.

The finance minister said in his budget speech, "To achieve economic prosperity through the development and growth of tourism, steps are being taken for the physical infrastructure development and beautification of the tourist areas of different districts and Upazilas by branding 36 districts having tourism potential."