Air operators warn of negative economic impact from proposed tax reforms

As the public participation window for Kenyans to share their views on the tax laws and the Tax Procedures Act closes, the Kenya Association of Air Operators (KAAO) has urged the government to align tax policies with international recommendations, such as those from the International Civil Aviation Organization and regional benchmarks under the East African Common External Tariff.

The operators, in their memorandum to the Committee of the National Assembly, warned that new taxes, if not well thought out, could jeopardize Kenya's position as the region's aviation hub. 

The presentation by the Kenya Association of Air Operators, the national umbrella body and unified voice of advocacy for the Kenyan aviation industry sought to shed light on the far-reaching consequences of some of the proposed tax changes.

The air operators warned that the changes will lead to increased operating costs. For instance, the imposition of a 16 percent VAT on imported aircraft, spare parts, and related services will significantly increase operational expenses.

Further, higher acquisition costs will hinder fleet expansion and upgrades, undermining Kenya's competitiveness.

They warned that the proposed removal of VAT exemptions could claw back sector gains, saying that those exemptions led to increased registration of aircraft and growth in passenger and cargo numbers.

The negative effects will go beyond operational issues and stifle investment and innovation in aerospace technology in the country, increase air travel costs, and, in turn, stifle tourism, trade, and investment.

Moreover, KAAO warns that the sector's contribution to GDP will be negatively impacted, declining from its current contribution of approximately 208 billion shillings, impacting the sector's ability to create jobs.

Currently, the aviation sector generates 26,000 jobs directly, with an additional 104,000 jobs indirectly supported by aviation.

At the same time, the air operators have applauded President William Ruto's decision to terminate the Adani deal.

According to the association, the privately initiated proposal (PIP) for the concession of Jomo Kenyatta International Airport (JKIA) was marred by concerns of transparency and inclusivity.