Treasury Cabinet Secretary Prof. Njuguna Ndung’u has proposed the removal of Value Added Tax (VAT) on all aircraft including helicopters and aeroplanes, aircraft simulators for training pilots and aircraft spare parts in a bid to promote investment in the country.
Prof Ndung’u who spoke on Thursday during the 2023/2024 Finance Year Budget Reading in Parliament said the exemptions of taxes in some of these key investment areas would spur economic growth in line with the Kenya Kwanza’s Bottom-up Economic Transformation Agenda (BETA).
The CS argues that the cost of aircraft training has been high due to the 16 per cent VAT imposed on the cost of import of spare parts and simulators, a situation which has led investors in the field to consider other jurisdictions.
“Currently helicopters, aeroplanes and other aircraft of unladen weight not exceeding 2000 kgs are subject to VAT; further some spare parts are expressly exempt from VAT. However, VAT exemptions on any other aircraft spare parts imported by aircraft operators or persons engaged in the business of aircraft maintenance are contingent upon recommendation by the competent authority responsible for civil aviation,” he said.
“The cost of aircraft maintenance and training activity has been high –prompting airlines to prefer taking these activities in other jurisdictions. In order to ease the process of VAT exemption in aircraft spare parts and encourage investment in this area, I propose to the National Assembly to remove the VAT on all aircraft simulators for training our pilots and aircraft spare parts.”
The CS, therefore, says that the move will bolster investment in the aviation field and encourage more pilots to undertake training programs locally.
CS Ndung’u also proposed the scrapping of VAT on exported services and products such as tea in a move he says will boost Kenya’s competitiveness in the global market.
“Currently, the exported services are subject to VAT at the rate of 16 per cent. This has caused an increase in the cost of exported services hence affecting the competitiveness of our services in the global market. In order to increase competitiveness and encourage the exportation of taxable services I propose to the National Assembly to remove VAT on exported taxable services,” he noted.
The Treasury CS noted that the tea purchased for local value addition, either from the factories or tea auctions centres is currently vatable hence affecting the cash flows of tea exporters.
“In order to encourage local value addition of our tea, I propose to the National Assembly to remove VAT on tea purchased from factories or tea auction centres for value addition and subsequent export. This will improve cash flows for tea exporters involved in local value addition,” said the CS.
The CS further said the government would also do away with the VAT on Liquefied Petroleum Gas (LPG) to make LPG affordable and promote its uptake as well as encourage the use of clean sources of energy.
“The high cost of Liquefied Petroleum Gas (LPG) contributes to the escalating cost of living and continued use of firewood and charcoal which negatively affects our forest cover. In order to make LPG affordable and promote its uptake as well as encourage the use of clean sources of energy, I am proposing to the National Assembly to zero rate VAT on LPG,” stated.
