Amongst the plethora of taxes described by the Vice President-elect, Dr. Mahamudu Bawumia, as ‘nuisance taxes’ is the 17.5 percent Value Added Tax (VAT) on domestic airfares.
The tax, approved by Parliament in the 2014 budget and implemented in July 2015 by the Ghana Revenue Authority (GRA), has faced intense criticism from all stakeholders—domestic airlines, airports operator and the State Enterprises Commission (SEC).
It has led to a downward spiral in domestic passenger throughput since July 2015, a sharp contrast to the high demand recorded in previous years.
As at December 2015, domestic passenger throughput – passengers travelling from Accra to and from Kumasi, Sunyani, Tamale and Takoradi – hit a new low of 16,892, a 69 percent reduction as compared with the December 2014 figure of 55,158.
“Just look at the VAT on domestic airfares; I come from the north and use to go by air. But now, I can’t afford paying about GH¢800 just to go to Tamale and come back to Accra. I drove there to vote with my family and just returned,” a visibly worried middle-aged woman told the B&FT.
Aside the travelling public, the bottom lines of domestic airline operators and the Ghana Airports Company Limited have been greatly affected by the poor volumes.
If passengers do not fly, airline operators fly their planes half-empty, and the Ghana Airports Company Limited (GACL) does not also make enough revenue in the form of passenger service charges.
Government has a policy of developing an airport in every region.
The GACL has already secured funds to complete rehabilitation of the Kumasi Airport.
Part of the said funds is also being expended on rehabilitating the Sunyani and Wa Airports, as well a new airport in Ho, Volta Region.
Given the expansion of existing and construction of new airports in the country, a review of the VAT on domestic fares is critical to encouraging citizens to travel by air and for the GACL to make enough revenue to service the loans used for developing these airports.
Indeed, the principle of “build and they will come” does not have a place in aviation.
There must be enough demand to justify the establishment of an airport in any part of the country.
There are many examples across the world where lack of demand has rendered huge airport investments useless.
India, for instance, spent a reported US$17million on an airport terminal building at Jaisalmer, in the country’s western Rajasthan state, which news reports say has remained a white elephant two years on.
Not a single passenger has passed through the gates of an airport big enough to handle more than 300,000 travelers a year, with parking bays for three 180-seat narrow-body jets, due to a lack of demand, it is reported of the Indian terminal building.
There are many more examples across the world where airport investment has gone bad due to no or low demand.
The New Patriotic Party (NPP), in its 2016 manifesto, promised to abolish the 17.5 percent VAT on domestic airfares to encourage the growth of the domestic aviation sector.
The travelling public and airline operators are anxiously waiting for the in-coming government to keep its promise, to bring the sector back on the path of growth.