The government has withdrawn value-added tax exemption three weeks after offering the benefit on port services for operating international flights as the benefit was given based on ‘misleading’ information provided by the International Air Transport Association.
Officials of the National Board of Revenue said that finance minister AMA Muhith on June 28 withdrew the VAT exemption which was offered with the budget proposal placed before the parliament on June 7.
Now 15 per cent VAT on charges and fees of various types of services, such as aeronautical and non-aeronautical services, will be applicable, they said.
The Civil Aviation Authority of Bangladesh imposes charges and fees to airlines against services like landing, parking, route navigation, security and boarding bridge facilities.
The NBR officials said that the government initially agreed to waive VAT on airport services to airlines for operating international flights in line with a plea of the IATA.
IATA regional vice-president for Asia Pacific Conrad Clifford on May 16, in a letter to the prime minister’s principal secretary Md Nojibur Rahman, said that levying of VAT on various aeronautical charges was a matter of serious concern to the aviation sector.
‘Imposing VAT in this manner is not only counter to international standards, policies and agreements that Bangladesh is signatory to, but unnecessarily increases the cost of travel to passengers and the cost of exports to businesses,’ he wrote in the letter.
The Prime Minister’s Office later forwarded the letter to the NBR for required actions on the issue.
Muhith, in his budget speech, said that he proposed to exempt VAT on port services for operating international flights only in accordance with Chicago Convention and worldwide practices of civil aviation authorities.
A senior NBR official told New Age that they later found that VAT on such charges remained in place in different countries and it was not contradictory to international standards and practices.
NBR field offices also appealed not to waive the sector from VAT payment as it was a significant source of revenue generation, the official said.
Considering the issues, the finance minister decided to withdraw the exemption, the official said.
The NBR first imposed VAT on both aeronautical and non-aeronautical charges in the financial year 2009-2010.
But CAAB did not collect the VAT on aeronautical charges until July 2015 when the NBR demanded VAT on the sector including arrears.
Later, some international airlines challenged the decision before the High Court Division which in its verdict in March 2016 said that the airlines must pay VAT on aeronautical services.