The Transport Ministry is to re-engage the finance minister, Seth Terpker, over the imposition of a 17.5 percent Value Added Tax (VAT) on domestic airfares.
“The Transport Ministry is to re-engage the Finance Minister to see how best to address the issue of suspending the VAT,” Twumasi Ankrah Selby, Chief Director-Ministry of Transport -- the entity with supervising authority -- told the B&FT.
Tax authorities in July 2015 started implementatingf the law that airline operators say has resulted in increased airfares: and a significant reduction in passenger numbers.
Finance Minister, Seth Terpker, has remained stoic over the issue despite several engagements between the Transport and Finance Ministries, and numerous calls by other stakeholders such as the State Enterprises Commission, Ghana Airports Company Limited, domestic airlines, and the Parliamentary Select Committee on Transport.
After a technical meeting between the two ministries last year, a proposal was tabled to suspend the 17.5 percent VAT on domestic air travel. Nonetheless, the 2016 Budget and Financial Statement of government presented to Parliament was silent on the issue.
“The point we are making is either give domestic airlines a five-year moratorium or introduce the VAT on domestic air travel gradually -- not the immediate full impact of the 17.5 percent, Mr. Selby told the B&FT in September, 2015.
A memo on suspending the 17.5 percent VAT on domestic air travels was tabled before Cabinet for consideration by the immediate past-Transport Minister, Mrs. Dzifa Attivor.
The domestic airline industry is relatively young, given that those currently operating flights from Accra to the four major domestic destinations are just three years old.
The initial buzz that characterised domestic air travel and saw many more people choosing air travel as opposed to road travel, after licencing more operators, has since been contained by challenging economic conditions which have seen a significant reduction in the purchasing power of consumers.
With the rising cost of operation for airlines, the imposition of 17.5 percent VAT on domestic air travel has led to a hike in airfares.
The current load-factor is relatively poor, irrespective of the fact that Antrak has suspended its flights for operational reasons. With increasing cost of operation, none of the domestic airlines currently operating is able to cover their direct operating costs (DOC) -- consisting of maintenance cost, ground handling, and fuel.
While the specialised fuel is sold for about US$2.30 cents per litre in Nigeria, it is sold for close to US$3.14 cents per litre in Ghana. It is sold for much less in Benin and Cameroon -- for US$2.30 and US$1.94 cents per litre respectively.
For a return flight between Accra and Kumasi, domestic carriers need up to about 70 percent load factor to cover their DOC -- a figure mostly not achieved except for weekends, when passenger numbers inch up close to 70 percent.
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