15% VAT exemption proposed for aircraft engines, engine parts import to boost local carriers

The new budget for FY 2024-25 has proposed a value-added tax (VAT) exemption on aircraft engines, parts of aircraft engines and turbo-propellers at import level from existing 15% to 0%, which was a long-standing demand of the local airlines of Bangladesh.  

The 15% VAT exemption will also cover the import of parts of turbo-jets or turbo-propellers.

"In the current reality, the domestic airlines are gradually lagging behind in the competition with the foreign airlines due to various reasons. In order to support the growth of local aviation companies and to tap the future potential of the industry, I propose to withdraw the VAT on aircraft engine and spare parts of propellers at the import stage," Finance Minister Abul Hassan Mahmood Ali said in his budget speech at the Parliament today (6 June).

The new proposal will help local carriers to compete with foreign airlines which grab around 75% of the aviation market share in Bangladesh.  

Local airline operators, however, said they demanded exemption of custom duty which is more urgent to see a direct impact on customer level.

Over the past 26-27 years, several private operators, including GMG Airlines, United Airways, and Regent Airways, had to ground their fleets as they struggled to survive.

Currently, the three privately operating airlines — US-Bangla, NovoAir, and Air Astra — are expressing concerns about their ability to capture the growing aviation market from foreign competitors due to inadequate policy support.

Mofizur Rahman, secretary general of the Aviation Operators Association of Bangladesh (AOAB) and managing director of NovoAir told The Business Standard, "Private airlines will benefit from the VAT exemption for turbo-propellers and parts of turbo-jets. The other VAT exemptions will help those who use small aircrafts and helicopters."

Rahman mentioned that they demanded exemption of customs duty on aircrafts parts and engines that is yet to be fulfilled.

"We import the highest two engines per year and import aircrafts parts of minimum Tk3 crore. So, if the National Board of Revenue (NBR) considers the exemption of customs duty, that will have a direct impact on customers' level by decreasing ticket prices," he said.

"Nevertheless, we welcome the decision of the government and consider more for the survival of the sector," he added. 

Tour operators unhappy with 15% VAT imposed

A 15% VAT has been imposed on tour operators in the proposed budget of FY25.

The tour operators said it will heavily impact the tourism industry which is already struggling to attract foreign tourists due to poor policy support and services.

"We purchase service from hotels, restaurants, and transport companies for tourists. All of these service providers pay VAT separately. If we have to pay VAT, how can we manage it?" Syed Mahbubul Islam (Bulu), former director of Tour Operators Association of Bangladesh (Toab) told TBS.

Fearing that the flow of foreign tourism may fall, he said, "Already the service-related costs including accommodation fees are high in Bangladesh in comparison to neighbouring countries. Now, the new VAT will push the price which will affect tourist flow," he added.

The Bengal Tours Managing Director, however, said that he is not sure about the implication of the policy on inbound or
domestic tour operators.

Bangladesh has attracted 6.5 lakh foreign visitors in the last year which is significantly lower than India, Maldives, and Sri Lanka.

Amusement park visits to get costlier

Visit to amusement parks are set to get costlier from the upcoming fiscal year 2024-25 (FY25) as the government has proposed to double the VAT on the entertainment services provided in the park.

The finance minister has proposed to increase the existing 7.5% VAT on amusement park services to 15%.

According to the Bangladesh Association of Amusement Parks and Attractions (BAAPA), there are currently around 300 amusement parks and theme parks across the country, 100 of which are members of the association.

The association's Chief Coordinator Anup Kumar Sarker told TBS that the sector was included in the industrial sector in 2022 and taxes are generally reduced in the industrial sector.

"I don't understand why the VAT rate has been increased suddenly. Many investors have already gone to the brink of destruction due to
Covid-19. They are trying to turn around now. But if the cost increases due to the new VAT rate, they will suffer again," he said.