CBR opposes new exemptions to aviation industry

ISLAMABAD (October 11 2006): The Central Board of Revenue (CBR) has opposed any new exemption/concession of duties and taxes to the aviation industry, particularly the flying schools, and chartered planes under the proposed National Aviation Policy (NAP) 2006.

Sources told Business Recorder on Tuesday that the tax officials have submitted their comments on NAP, keeping in view the exemptions given in the 2006-07 budget.

The CBR has drafted recommendations on the directive of Prime Minister Shaukat Aziz in a meeting in connection with the National Trade Corridor, which decided to discuss the draft National Aviation Policy with all stakeholders to create an environment conducive for the aviation industry.

The CBR is of the view that since adequate exemptions are already in place, any extension therein is not supported under the National Aviation Policy, sources said. According to the Board, presently, exemption from sales tax is available for aircraft (not helicopters) spare parts, if imported by domestic airline for maintenance of planes.

Exemption of customs duty and sales tax is also available on import of aircraft spares, parts, tyres, navigational equipment, accessories for maintenance and operations of aircraft, chemicals, lubricants and paints, air tickets, aircraft carpet, aircraft fabric, skydrol (brake fluid), laminated sheet, aluminum alloy sheets, aluminum alloy extrusions, aircraft seats, tools, test equipment, life jackets, spares of TGS vehicle, meals trolley, ball hand seal, standard units, exterior washing liquid, air head set electronics, air head set pneumatic and sealants. The items should also be imported by domestic airlines for maintenance of their aircraft.

Sources said that the said exemptions are linked with the commercial activity for general public. Therefore, extension of exemption for exclusive use eg flying schools, chartered planes is not supported by the Board.

They said that unconditional exemption has been granted to planes and other aircraft covered under the Sales Tax Act, 1990. However, helicopters, having only insignificant share in the local aviation sector, cannot be extended the same exemption.

Previously, exemption of sales tax under the Sixth Schedule of Sales Tax Act, 1990 was applicable on imported aircraft having un-laden weight of 8000 kg or more. Generally, commercial airlines hold aircraft above 8000 kg whereas General Aviation Operators use aircraft below 8000 kg. In order to promote the aviation industry, all types of aircraft have been exempted from levy of sales tax by including the same in the Sixth Schedule of Sales Tax Act, 1990.

According to CBR, flight simulator software is already exempt from sales tax levy, while publications and manuals, too, are exempted from sales tax. The Board said that elimination/reimbursement of taxes on secondary routes would be discriminatory and would cause distortion in the local air travel market.

All plants, machinery, equipment (whether or not locally manufactured) is already zero-rated from sales tax purpose and aviation related items are also exempted from sales tax. The Board has already given a number of exemptions to the aviation sector and further exemptions would not be appropriate in this regard.

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