Tanzania plans to extend VAT exemption on chartered air services

Dar es Salaam. The government’s intention to extend a value added tax (VAT) exemption on air charter services for four years has been received with jubilation by industry players who believe it would spur growth of intertwined multi-billion-dollar industries of aviation and tourism.

During the just-concluded parliamentary sessions, a bill supplement was issued on January 20, proposing 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 1st July 2026.

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

If approved by the Parliament, VAT exemption on air charter services will continue through June 30, 2026, enabling players of the twin industries that earn the Tanzania economy nearly $2.6 billion in foreign currency annually to breathe a sigh of relief.

The two industries – 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.

The Tanzania Air Operators Association (TAOA) board chairman, Captain Maynard Mkumbwa, has on behalf of the aviation industry welcomed the decision to extend the VAT tax relief, expressing his earnest gratitude to the government with the considerate President 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.

“I can’t thank enough our considerate government under the President 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 31st December 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 Lathifa Sykes said the move was counterproductive to President Hassan’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 President Hassan’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 Hassan and the ruling party is preaching. Aviation industry has been VAT exempt for years for a reason,” the TAOA CEO noted.

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.