Tanzania may extend VAT exemption on air charters for four years

Tanzania bids to spur growth of intertwined multi-billion-dollar industries of aviation and tourism

Plans are underway for Tanzania to extend a value added tax (VAT) exemption on “Air Charter Services” for four years in a bid to spur growth of intertwined multi-billion-dollar industries of aviation and tourism.

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

If all goes well, VAT exemption on “Air Charter Services” will stay through June 30, 2026, offering a ray of hope to the aviation and tourism players to grow business and leapfrog other economic sectors.

The Tanzania Air Operators Association (TAOA) board chairman, Captain Maynard Mkumbwa has on behalf of the aviation industry welcomed the plan of extending the VAT tax relief, expressing his earnest gratitude to the government with the considerate President, Dr. Samia Suluhu Hassan, at the helm.

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.

The association provides a range of services to its members such as taking part in the policy formulation and reforms; access to relevant industrial information about travel, tour and tourism; coordinates partnerships and business linkages between members and relevant players in the national economy.

“I can’t thank our considerate government under the President, Dr. Samia Suluhu Hassan. The reinstatement of VAT on air charter services was essentially shooting ourselves in the foot,” said Captain Mkumbwa.

Traditionally, air charter services were treated as exempt supplies as provided under both the VAT Act, 2014, and 1997, respectively. However, the Finance Act, 2022, provided for this exemption to end with effect from December 31, 2022, in a move to expand the VAT base.

As it happened, the Finance Act, 2022, amendment was squarely challenged by the aviation players through TAOA, citing an immediate decline in advance bookings and its consequent negative impact on the tourism industry as vivid examples of ripple effects of the removal of the exemption.

In her argument, TAOA Chief Executive Officer, Ms Lathifa Sykes said the move was counterproductive to President Dr. Samia’s initiative through her recently launched Tanzania The Royal Tour Film to promote tourism industry and investment.

The Tanzania Royal Tour film is part of Dr. Samia’s ambitious commitment to achieve one of the pledges of the ruling Chama Cha Mapinduzi’s 2020 General Election manifesto to spur the tourism industry for it to create meaningful employment and leapfrog other economic sectors.

Indeed, the CCM manifesto clearly stipulates that tourism will attract five million tourists who will leave behind nearly $6.6 billion by 2025 with expected massive multiplier effects to a critical mass of common folks in Tanzania, particularly women and youth.

“The removal of VAT exemption on air charter services was countering what President Dr. Samia and the ruling party is preaching. Aviation industry has been VAT exempt for years for a reason,” the TAOA CEO noted.

TAOA Vice-Chairman Mr. Mrisho Yassin said the idea would go a long way in driving the two intertwined industries of aviation and tourism to a great height.

A Bill supplement issued on January 20, 2023, proposes to extend the VAT exemption on the supply of air charter services to June 30, 2026, implying to repeal the removal of the amnesty on December 30, 2022.

Part IX proposes to amend the VAT Act, Cap. 148, whereby item 22 of the schedule is amended so as to extend the VAT exemption on air charter services in order to facilitate growth trajectory in the tourism industry.

The Bill Supplement (“the Written Laws (Miscellaneous Amendments) Act, 2023”) proposes to reinstate the exemption and postpone its removal until July 1, 2026.

This implies that it has been recognised that the proposed removal of the exemption would have serious negative implications on the tourism industry.

Tourism is Tanzania’s largest foreign exchange earner, contributing an average of $2.6 billion annually, which is equivalent to 25 percent of all exchange earnings, the government’s data indicate.

Tourism also contributes to more than 17 percent of the national gross domestic product (GPD), creating over 1.5 million jobs.