There is “triple tax dipping” going on when it comes to airfares, says Shadow Minister of Tourism and Member of Parliament, James Vos. He plans to present a policy to parliament within the year proposing the axing of VAT on domestic air tickets.
“There needs to be a reduction in aviation taxes to improve the competitiveness of South Africa as a value-for-money destination for local and international tourists.” He says while several taxes are grouped together as airport taxes, only approximately 20% goes to the airport. “If we exempt air travel from VAT then an immediate cost saving of 14% will be realised by travellers. This step will not require new legislation but merely an amendment to existing legislation that will expedite implementation.” He says EU countries like Germany, France, Italy and Greece have implemented the zero-rated tax policy on flights and that there has been a significant increase in travel following the zero-rating.
Chris Zweigenthal, Chief Executive of Aasa, says on domestic tickets, VAT is charged on the fare and on all the charges in the ticket tax boxes. Zweigenthal says while he understands the concern over double or triple dipping he says the same is practised in other sectors of the economy. “Ultimately, however, the passenger does pay for VAT on the domestic ticket. If this was done away with it would be welcomed by the passenger and probably have an impact on the propensity to travel for domestic travellers.”
He believes this would be a very hard sell given the other priorities in South Africa and pressure for VAT to be removed on basic commodities. June Crawford, CEO of Barsa, says the VAT Act would need to be amended and domestic airline tickets zero rated. “I doubt that this would be something that SARS would entertain, as air travel is not an essential. Any reduction in costs on air travel goes towards stimulating demand but I doubt this would be significant. Some airlines in this market offer well priced fares,” she adds.
SA Airlink CEO, Rodger Foster, says it would be useful to get the calculations that underpin the rationale. “If air tickets become VAT exempt, what about VAT on all the input costs? Will these also be VAT exempt? If the entire supply chain is VAT exempt, there would be a cost saving to the consumer.”
Treasury told Tourism Update that the taxes that applied to air travel included the air passenger departure tax, VAT and proposed carbon tax. Treasury says because VAT is mainly a revenue-raising instrument that flows into the national revenue fund and a final consumption tax, applied on top of all other charges that may include other excise taxes (air passenger departure taxes), it does not agree with the notion of triple dipping. Treasury says it does not support increasing the scope of current VAT exemptions or concessions as these have not proved to provide any assistance to poor or specific sectors.
“In light of the revenue and environmental objectives of government, proposals to deviate from the current taxes affecting the air travel space are therefore not supported.”
