International airlines will have to pay 15 percent value added tax (VAT) on aeronautical services provided by the Civil Aviation Authority of Bangladesh (CAAB), according to the National Board of Revenue (NBR).
The VAT wing of the revenue board on Tuesday issued an instruction to the CAAB rejecting a plea submitted by the International Air Transport Association (IATA) seeking VAT exemption on aeronautical service charges.
The tax authority said the VAT would be applicable on charges of services, such as landing, parking, scanning and storing of goods. However, food or catering services to be provided to passengers onboard will remain VAT-free as food can be consumed outside the territory of Bangladesh.
On September 27, the IATA sent a letter to the revenue board seeking the NBR’s directive on the issue while the civil aviation and tourism ministry and the NBR’s field-level VAT office concerned also sought clarification on the applicability of VAT on the services.
In its instruction, the NBR said that VAT must be realised on the services provided by the CAAB and availed within the territory of Bangladesh as the services were not considered as zero VAT rate services.
The revenue board also informed the IATA Dhaka office of the decision and asked NBR field offices across the country to take necessary measures in this regard.
In the instructions, the revenue board clarified the definition of the aeronautical services as per the new VAT and Supplementary Duty Act-2012. It said that services availed inside the air transport bound for international destinations would be considered as zero VAT rated services.
VAT will be applicable on other services that that were availed within the boundary of the country, it clarified.
The airlines usually availed a number of aeronautical services – landing, parking, route navigation, security, boarding bridge facilities and port services from the civil aviation authority – which had not been included in the definition of ‘international transportation’ services.
Earlier, only services such as stuffing and unloading, inspection, documents preparation and processing, container handling, warehousing and preservation, security scanning of goods had been defined as transport related services in the law.
Both local and international airlines avail the services from the civil aviation authority. VAT on aeronautical services availed by local airlines for both domestic and international routes has been applicable since the imposition of the VAT.
So, VAT will be applicable on the services taken by international airlines too, they said, adding that there was also a Supreme Court ruling that required that VAT be paid on the services.
Earlier in June 28, 2018, the VAT wing withdrew the VAT exemption facility, three weeks after giving the benefit on port services for operating international flights.
The benefit offered with the budget proposal placed before the parliament on June 7, 2018 was withdrawn on the premises that it had been given on the basis of false and misleading information provided by the IATA.
The IATA, in a letter to the Prime Minister’s Office on May 16, 2018, claimed that imposition of VAT on the services was against the international standards, policies and agreements and unnecessarily increased the cost of travel and the cost of exports.
The NBR first imposed VAT on both aeronautical and non-aeronautical charges in the financial year 2009-2010.
But CAAB did not begin collection of VAT on aeronautical charges until July 2015 when the NBR demanded VAT on the sector, including arrears.
Later, some international airlines challenged the decision at the High Court which in its verdict in March 2016 said that the airlines must pay VAT on aeronautical services.
Meanwhile, the industry insiders feared that levying the VAT on aeronautical services will increase ticket prices as carriers will pass the tax burden onto the consumers.
