The International Air Transport Association (IATA) is unhappy with the revenue board for imposing 15 percent value-added tax (VAT) on aviation charges.
The decision contradicts international law and is likely to hurt Bangladesh's growing aviation industry, the association said.
"The imposition of VAT on aeronautical charges for international air transport contradicts accepted policies and guidelines on taxation published by the International Civil Aviation Organization, the Organization for Economic Cooperation and Development, and the World Trade Organization," said the IATA on Thursday.
"It is our strong contention that the aeronautical and related charges are VAT zero-rated and should not be subject to tax at 15 percent. Such services are directly related to, and necessary for, the operation of aircraft in international traffic and should not be considered as ancillary transport services," said the IATA Director General and CEO Alexandre de Juniac.
He said not imposing VAT on these necessary services in line with international standards would ensure the continued development of the air transport sector and its valuable contribution to Bangladesh's economy.
Juniac pointed out that many jurisdictions, including Saudi Arabia, the United Arab Emirates, Bahrain, Singapore, the European Union, and Canada, do not subject most aeronautical services and related charges on international air transport to VAT.
The IATA, a global trade association of airlines with more than 250 members, requested the National Board of Revenue (NBR) to withdraw 15 percent VAT on international air transport.
The NBR imposed VAT on landing, route navigation, security, boarding bridge, embarkation, and licence charges.
In February 2015, the NBR sent a notice to the Civil Aviation Authority of Bangladesh to pay its unpaid VAT from 2009-10.
As an audit of the revenue authority found that the Civil Aviation Authority was not paying VAT on airport services, it issued the notice.
However, it contradicts the VAT Act 1991 which exempted services availed by the airlines from such taxes.
It also goes against the international law as the International Civil Aviation Organisation says, "Each contracting state shall reduce to the fullest practicable extent and make plans to eliminate all forms of taxation on the sale or use of international transport by air, including taxes on gross receipts or operators and taxes levied directly on passengers or shippers."
The IATA, in a letter to the Civil Aviation Authority, said that VAT levied on airlines services contradicts international taxation policies.
As the Civil Aviation Authority is not a VAT registered organisation, the parliamentary standing committee on aviation decided to collect VAT from airlines, following the revenue board's notice.
After the decision, the Civil Aviation Authority in July 2015 asked all airlines to pay unpaid VAT from 2009-10.
The airline operators refused to pay the retrospective VAT as it indirectly falls on the passengers. But there is no way of collecting indirect VAT from the passengers who had already travelled.
Nine airlines and two passengers filed writ petitions then but the High Court dismissed those.
When asked, Abdul Mannan Shikder, member (VAT Policy) of the NBR, explained that airline services mean only ticket fare. So, only air ticket fare will be exempted from VAT and other services the airlines received from the airports would come under VAT.
The VAT law mentions the word "airlines" in the sections on VAT exemption, but it does not define the services. This has created confusion in the industry.
"The National Board of Revenue demanded VAT from the Civil Aviation Authority, not from the airlines operators," said Abdul Mannan.
"The aviation services have been under VAT since 1991 but the Civil Aviation Authority did not collect it. So, collecting the retrospective VAT is a concern of the Civil Aviation Authority."