Lowering fares: Pvt airlines get budget boost with VAT, duty cuts
Govt allocates Tk2,455cr for Civil Aviation and Tourism ministry
Private airlines have gained a boost in the proposed FY26 budget, as VAT exemptions on aircraft lease rents and a reduction in customs duties on jet fuel are expected to lower operational costs and make air travel more affordable.
Industry insiders say these measures could bring much-needed relief to passengers, with potential reductions in airfares on domestic and international routes where ticket prices have remained high.
Finance Adviser Salehuddin Ahmed, while placing the Tk7.9 lakh crore budget for FY26, announced that VAT would be exempted on lease rents for passenger aircraft. Also, customs duties on aviation spirit and jet fuel will be slashed from 10% to 3% – a move aimed at encouraging passenger growth and enhancing competitiveness, particularly for domestic carriers.
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"These changes will reduce our monthly operational costs significantly," a former CEO of a leading private airline told The Business Standard. "We currently pay at least half a million dollars per aircraft per month in lease rent, plus 15% VAT. Removing this VAT opens up the possibility of lowering ticket prices."
Currently, airlines pay 15% VAT on lease payments, most of which are made in foreign currency under international agreements. This VAT burden has long been a pain point for both private and state-run carriers, ultimately inflating ticket prices, especially for international travel.
Most aircraft operated in Bangladesh – by both national and private airlines – are leased. The removal of VAT on lease rent is expected to ease financial strain across the sector, while the reduced jet fuel duty is likely to directly benefit passengers.
In the proposed budget, the government has allocated Tk2,455 crore for the Ministry of Civil Aviation and Tourism. Of this, Tk2,401 crore is set aside for the Annual Development Programme (ADP), with the remaining Tk54 crore for operational expenses. The revised allocation for FY25 stood at Tk4,878 crore, down from the original Tk5,695 crore.
Stakeholders hope that these fiscal measures will not only ease current cost pressures but also position the aviation sector for stronger post-pandemic recovery and growth.
