Kenya Airways welcomes VAT reprieve

A Boeing 777-300ER at the Jomo Kenyatta International Airport in Nairobi. It was acquired in October last year. PHOTO | DIANA NGILA 

By SIMON CIURI, sciuri@ke.nationmedia.c

In Summary

• The amendment passed on Wednesday saw KQ exempted from VAT on new planes at a time when it is expecting to buy about nine aircraft.
• President Uhuru Kenyatta is expected to assent the Bill into law.
• Kenya Airways has of late been constrained financially weighed down by the huge VAT bills it had to pay to the Kenya Revenue Authority.

Kenya Airways (KQ) has said the amendments to the Finance Bill 2014 exempting it from having to pay value added tax (VAT) on aircraft and spare part imports will save the national carrier operating costs and help it compete with rivals.

The amendment passed on Wednesday saw KQ exempted from VAT on new planes at a time when it is expecting to buy about nine aircraft.

President Uhuru Kenyatta is expected to assent the Bill into law.

“This is in line with what we have been lobbying for. The new law will spur expansion. We appreciate the decision,” incoming Kenya Airways chief executive Mbuvi Ngunze told the Business Daily on Thursday.

Parliament had in April introduced VAT on aircraft weighing more than 2,000kg, including KQ in the tax bracket that saw it immediately owe the taxman billions as it was in the midst of importing the new aircraft.

The exemption, when implemented, is set to cater for aircraft weighing between 2,000kg to 15,000kg.

The new law had disadvantaged Kenya Airways compared to its main rival Ethiopian Airline, which had for long been exempted on similar taxes back home.

Industry players have been lobbying for aircraft and their spare parts be exempted from VAT in line with the East Africa Community Customs Management Act.

Kenya Airways has of late been constrained financially weighed down by the huge VAT bills it had to pay to the Kenya Revenue Authority.

Each of the said Dreamliner costs KQ Sh11 billion. Therefore, paying the 16 per cent VAT on the eight aircraft posed a new challenge to the airline’s operations at a time  the carrier is struggling with a drop in passenger numbers.

This is due to travel advisories issued by the US and the West over recent wave of insecurity in the country and Ebola outbreak in West Africa.