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Monday, 29 September 2014

PLANS TO CUT FLIGHT COSTS IN EAST AFRICA BY HALF

Kenya's budget carrier Jambojet plane. Transport ministers from the region have agreed on new tax measures that are expected to bring down the cost of air travel.
Transport ministers from the region have agreed on new tax measures that are expected to bring down the cost of air travel and attract more investments in the aviation industry.
The ministers from South Sudan, Uganda, Kenya and Rwanda who met in Kigali recently suggested that Value Added Tax (VAT) and other taxes airlines pay be scrapped, saying that they add to the high costs of air travel. VAT in the region ranges between 16 and 18 per cent.
If the Heads of State Summit slated to take place next week adopts the resolutions passed by the ministers, it is hoped that air travel costs could come down by more than 50 per cent, making it affordable for the majority of travellers in the region. Currently, air travel is a preserve of the privileged few.
It was noted that in the case where travellers are to connect from one city to another, most end up using road transport which takes longer and is tiresome.
For example, passengers spend nine hours on the Kigali-Kampala route by road compared with 45 minutes by air.
“I would rather spend $14 on a bus to Kampala than over $435 by air to Entebbe,” said Denis Mugabo a businessman in Kigali.
The transport ministers also agreed to encourage more low cost airlines to operate between major cities, operationalise the fair competition law, implement the double taxation agreement and enforce the open air space policy as per the 1999 Yamoussoukro Decision — which outlines measures regarding the liberalisation of air transport markets in Africa.
But analysts also noted that the high aviation fuel costs, airport charges and other taxes are partly responsible for the expensive air travel, a challenge that the governments of Uganda, Kenya, Rwanda and South Sudan must address under the regional initiative to fast track infrastructure development — Northern Corridor Integration Projects.
Clare Akamanzi, the chief operating officer of the Rwanda Development Board, a body charged with attracting the private sector in the country suggested that the Northern Corridor countries should also invest jointly in a jet fuel storage facility.
“This will ensure bulk purchases of fuel which come with economies of scale making it more affordable,” said Ms Akamanzi.
Airlines complain that high fuel costs especially in land locked Uganda and Rwanda add to the high operational costs.
Kenya’s Transport Secretary Michael Kamau said should the Heads of State Summit ratify the proposed measures, then air transport in the region will become affordable.
Stephen Chebrot, Uganda’s State Minister for Transport concurred.
“Flying from Entebbe to Arusha costs $100 but a flight from Entebbe (Uganda) to Nairobi in Kenya is more than $500. We want regional flights to be more affordable,” said Dr Chebrot.
Enforcing the Yamoussoukro Decision has been delayed because competition regulations have not been ratified in the region, a competition authority is not in place and dispute resolution mechanisms are lacking.
The concern is that the failure to enforce the competition laws is partly responsible for anti-competition practices.
“We want fair competition in the industry to drive down costs and give passengers more options,” said Dr Chebrot.
It was also agreed that the four countries ratify the Double Taxation Agreement, a development which is seen to be key in lowering taxes and increasing cross-border investments in the aviation industry.
Though the East African Community Council of Ministers approved the Community’s Double Taxation Treaty in 2010, it is only Rwanda which has ratified the agreement.
This means airlines are taxed in two jurisdictions — their home country and countries they fly to, adding to the high operational costs, which are then passed on to passengers.
The East African

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