Tanzania Aviation Industry Relieved by VAT exemption

Finance Minister, Dr. Mwigulu Nchemba proposed amendment to the law in order to enforce a VAT exemption on sale and lease of air charters.

Tanzania’s aviation sector has breathed a sigh of relief, thanks to the government law reform to offer a tax break, in a bid to spur growth of intertwined multi-billion-dollar industries of aviation and tourism.

The two industries that earn the Tanzanian economy nearly $2.6 billion in foreign currency annually – under the umbrella of travel sector – are intrinsically linked, as tourism relies on aviation to bring in visitors, and aviation banks on tourism to generate demand and fill seats.

Tabling the 2023/24 budget at Parliament in Dodoma last week, the Finance and Planning Minister, Dr. Mwigulu Nchemba proposed amendment to the law in order to enforce a VAT exemption on sale and lease of air charters, offering a ray of hope to the aviation and tourism players to grow business and leapfrog other sectors of economy.

“I propose to amend part I of the schedule to the Value added tax Act, Cap. 148 to include a VAT exemption on sale and lease of aircraft, aircraft engine or parts by a local operator of air transportation” Dr. Mwigulu said in his budget speech.

This implies that the government wants to undo the measure taken in the financial year 2022/23 on supply of air charter services, as it seeks to align with the efforts of reviving tourism industry along with the invaluable move of President Dr. Samia Suluhu Hassan of promoting Tanzania as a tourism and investment destination, through the Royal Tour film.

Dr. Mwigulu in his own words said: “The VAT exemption measure intend to support the growth of Aviation industry and reduce business and investment cost”.

The Tanzania Air Operators Association (TAOA) board Chairman, Captain Maynard Mkumbwa welcomed the government move, saying it offers enormous opportunities for the key economic industry to grow by leaps and bounds.

“This has been our grave concern all along. However, TAOA appreciates the government for being considerate. Our earnest gratitude goes to the President Dr. Samia Suluhu Hassan for her painstaking efforts to create conducive business environment” Captain Mkumbwa noted.

TAOA Chief Executive Officer, Ms Lathifa Sykes said that the VAT on air charter services contained a seed of destruction as it had created turbulence and slowed down investments in the aviation industry.

The aviation sub-sector is a key pillar of tourism in Tanzania as it contributes a fair share of foreign currency to the country.

“I’m short of words for the government and parliament to have heeded our scream. As we seek to unlock the full potential of tourism to bring more foreign exchange, we cannot afford to ignore the aviation as it plays a critical role of travel for many tourists” Ms. Sykes said.

TAOA CEO expressed that when aircraft are affordable, for example through VAT, exemption, investing in the aviation sub-sector becomes lucrative.

Through increased investment in the aviation industry, she explained as the basic law of supply and demand suggests airfare becomes affordable.

“This will result in an increase in local and international air travel. The investors will be happy with the profits and so will the government will generate more income from tax” Ms. Sykes stressed.

TAOA is the member-base association that aims at fostering legal and responsible development of the aviation industry by ensuring safety, efficiency, regularity and economic operations.

It provides a common platform for the promotion of best practices and engages in effective advocacy with the government through responsible authorities.