The Federal Government's decision to put on hold the 15 percent Federal Excise Duty (FED) on international travel for a month has certainly averted the confusion and mayhem that could have taken place after midnight on June 30 at the airports.
The system for collection of the levy by airlines and travel agents was not in place. And, it would have taken overseas passengers visiting Pakistan totally by surprise because 15 percent of the airline fare is a substantial sum and everyone does not carry much cash in their pockets.
It appears that the government struggling to keep the fiscal deficit under control had not clearly thought through the consequences of this levy on Pakistani tourism and the disastrous impact it could have on the national airline (PIA).
The Government can meet its target of Rs 2 billion collection from this levy without disturbing the travel sector. PIA alone carries around 3.5 million passengers a year. A flat fee of Rs 600 per ticket will give more than Rs 2 billion. As the foreign airlines have 40 percent share in the travel market, the total collection will touch Rs 3 billion. That would be more than what was envisaged.
The real issue facing the economic managers is how to bring more people into the tax net, specially those who should be paying but are escaping the tax net. Instead, the tax collectors are trying to squeeze more revenue from the sources that are paying and are now overtaxed.
A cursory glance at an airline ticket will show that there are a number of taxes already being collected from airline passengers. Central Excise Duty at Rs 500 on foreign travel and 15 percent on domestic travel; airport tax at Rs 700 (Economy), Rs 1300 (Business) and Rs 1400 (First class) on foreign travel and on domestic travel Rs 100 (Economy), Rs 200 (Business) class; PIA is charging $10 war risk for Middle East and Far East routes and $20 for Europe and North America; and now $5 per coupon fiscal tax. It may noted that in fact 75 percent of foreign airlines have abolished war risk insurance.
However, all airlines including PIA are collecting fuel surcharge due to abnormally high oil prices. The Capital Value Tax of 1.5 percent (collected as regional government tax) is now being replaced with the 15 percent federal excise duty.
In case the government does not become realistic and persists with the 15 percent excise levy from August, not only it will not be able to collect the Rs 2 billion envisaged but would damage the entire travel sector. As it is, Pakistani airports have become feeder airports - to Dubai - the crossroads between East and West.
Passengers will purchase ticket for Rs 10-15,000 for Dubai and after paying Rs 3000 as UAE Visa Fee, will avail themselves of tickets out of Dubai for onward travel. Soon thereafter, Bahrain, Muscat, Abu Dhabi and Jeddah will become ticket purchasing centres for Pakistani passengers.
Middle Eastern airlines, despite availability of aviation fuel at lower cost than others are offering attractive packages. For Pakistanis an important incentive is that they can perform Umra while going to Europe and beyond.
It is not the travel agents but the airlines which act as tax collection agents for the government. Instead of imposing more and more indirect taxes, why don't we impose a direct tax like the withholding tax only the tax paying public specially the fixed income class and businessmen, will be able to adjust their tax liability.
And, those who do not pay a paisa in taxes, not having been allocated a national tax number, will not only end up paying but can also be questioned from where the money is coming to meet their own and families' foreign sojourns. The government needs to carefully consider the damage the federal excise levy on foreign travel can cause and instead adopt a more rational course.
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