Revenue board and airlines at loggerheads over VAT on aviation charges

The National Board of Revenue (NBR) and the aviation operators are in disagreement over the 15 percent VAT on aviation charges imposed in 2015 as its retrospective effect put the airlines in trouble.

Imposing VAT on aviation charges contradicts the NBR's own VAT law. It also goes against the tax policies of the International Civil Aviation Organisation, of which Bangladesh is a member.

However, the revenue authorities have not been able to implement the disputed VAT in the past four years since its imposition.

The Etihad Airways, which suspended its flights between Abu Dhabi and Dhaka last year, proposed resuming the flights, provided the VAT dispute is resolved. The airline operator made the proposal during Prime Minister Sheikh Hasina's visit to the United Arab Emirates in February this year.

In February 2015, the NBR served the aviation regulator Civil Aviation Authority of Bangladesh with a notice for paying the unpaid VAT from 2009-10.

The VAT was imposed on landing, route navigation, security, boarding bridge, embarkation, and licence charges.

The notice was issued after an audit by the revenue authority found that the Civil Aviation Authority of Bangladesh has not been paying VAT on airport services.

However, it contradicts with the Value Added Tax Act 1991 in which services availed by the airlines were exempted from such taxes.

It also goes against the international law as the International Civil Aviation Organisation says "each contracting state shall reduce to the fullest practicable extent and make plans to eliminate all forms of taxation on the sale or use of international transport by air, including taxes on gross receipts or operators and taxes levied directly on passengers or shippers."

The International Air Transport Association, a global trade association of airlines with more than 250 members, has sent a letter to the Civil Aviation Authority of Bangladesh raising the issue that the VAT levied on airlines services contradicts international taxation policies.

As the Civil Aviation Authority is not a VAT registered organisation, the parliamentary standing committee on aviation decided to collect the VAT from airlines following the revenue board's notice.

After the decision, the Civil Aviation Authority in July 2015 asked all airlines to pay unpaid VAT from 2009-10.

Airline operators refused to pay the retrospective VAT as it indirectly goes to the consumers. But there was no way of collecting indirect VAT from the passengers who had already travelled.

Nine airlines and two passengers filed writ petitions at that time but the High Court dismissed those.

"The imposed VAT on aviation charges goes against the NBR's VAT law as airline services are exempted from it," said Mokabbir Hossain, managing director of Biman Bangladesh Airlines.

"It also contradicts the international law, so it will discourage foreign carriers to operate in Bangladesh," he said.

"So, it is illogical to impose VAT on aviation services," he added.

When asked, Abdul Mannan Shikder, member (VAT policy) of the National Board of Revenue, explained that airline services mean only ticket fare. So, only air ticket fare will be exempted from VAT and other services the airlines received from the airports will come under VAT.

The VAT law mentions the word "airlines" in sections on VAT exemption, but it does not define what services are meant by the term. This has created confusions in the industry.

"The National Board of Revenue demanded VAT from the Civil Aviation Authority of Bangladesh, not from airlines operators," said Shikder.

"The aviation services have been under VAT since 1991 but the Civil Aviation Authority of Bangladesh did not collect it. So, how the retrospective VAT will be collected is a concern of the Civil Aviation Authority," he added.

Asked why the NBR did not collect VAT from the start, he said, "I do not have an answer for this question."

He said negotiation is going on to resolve the dispute.

Airlines agreed to pay VAT for the current year but they refused to pay the retrospective VAT, said Mofizur Rahman, secretary general of the Aviation Operators Association of Bangladesh.

"Levied VAT indirectly goes to the passengers, so how the retrospective VAT will be collected from the passengers who had already travelled?" he said.

"Moreover, it is not clear how retrospective VAT will be collected from the airlines that already left the country," he added.