Investment in aviation industry: Aviation Division gives tax incentive plan to FBR

ISLAMABAD: The Aviation Division has provided a tax incentive plan to the Federal Board of Revenue (FBR) for encouraging investment in the aviation industry, and increase in domestic and international air travel of Pakistani passengers.

Sources told Business Recorder here on Saturday that the Aviation Division had chalked out a detailed plan for reduction in the rate of the Federal Excise Duty (FED) on air travel, and exemption/reduction in duties and taxes for the aircrafts and airline industry.

The FBR is working on the tax incentive proposals submitted by the Aviation Division to check the revenue implications of each tax incentive or exemption of duties and taxes or reduction in tax rates for the airlines and airports. Recently, a meeting was held at the Aviation Division under the chairmanship of a senior official of the Aviation Division to discuss exemption/reduction in taxes and duties on aviation sector.

The representatives of the FBR and the Civil Aviation Authority (CAA) discussed the tax incentives proposals for the airline industry.

The authorities of the Aviation Division informed that the federal cabinet had approved the National Aviation Policy 2019, with a view to provide ease of doing business and reduce the cost of doing business.

In light of the new policy, the CAA has rationalised its aeronautical and non-aeronautical charges.

The CAA has waived-off charges on the domestic routes.

However, in order to provide more incentives to the aviation industry, and to encourage air travel among Pakistanis citizens, it is imperative that the FBR reduce taxes in various areas.

The Aviation Division discussed the following areas with the representatives of the FBR: (i) reduction in the FED on air travel; (ii) exemption of duties and taxes on salvage/non-operational aircraft; (iii) exemption of duties and taxes on import of aircraft; (iv) exemption of duties and taxes on greenfield and brownfield airports; (v) incentives of taxes and duties on Aircraft Maintenance Organizations (AMOs) and Maintenance Repair and Overhaul (MROs); (vi) incentives of taxes and duties on aircraft manufacturing; (vii) incentives of taxes and duties for aircraft simulator; (viii) incentives of taxes and duties for operations on socio-economic routes; (viii) incentives of taxes and duties for ground handling services; (ix) reduction in duties and taxes for fuel supply services, and (x) incentives in taxes and duties for flight catering services.

For the growth of air travel, domestic carriers will be given incentives through exemption of duties and taxes on the import of aircraft and/or its spare parts through a simple procedure, the Aviation Division proposed.

In order to revive the aviation sector in Pakistan, the FBR may consider exemption of taxes and duties on the investments made in the aviation sector such as airport infrastructure development, flight catering services, aircraft manufacturing industry, maintenance repair organisations, import of aircraft including aircraft engines, spare parts and supplies of all specification and ground support equipment.

The federal government intends to grant a tax-holiday of 10 years for existing and new aircraft manufacturing industry set up, maintenance repair organizations, airport operational equipment manufacturers, etc, the sources suggested.

The FBR may also consider reducing the FED on air travel/air cargo.

Initially, the policy of substantial reduction in FED by the FBR be introduced for a period of two years to analyse the impact of such a measure to revive the air transportation business in Pakistan and may be reviewed after two years.

The FED on distance of 500 km or less may be exempted as these are mostly socio-economic routes.

The FED on air-ambulance/medevac may also be exempted.

This arrangement may continue accordingly, subject to positive results in the growth of the aviation sector with its contribution to the national economy, they stated.

The representatives of the FBR requested that a consolidated proposal covering all proposals may be provided to the FBR Member Inland Revenue Policy and the FBR Member Customs Policy for consideration, the sources added.

Copyright Business Recorder, 2020