Continuous Proliferation of Taxes, Fees and Charges TFCs in the Air Transport Industry in Africa: Leading to very Expensive Ticket Cost for Passengers

Continuous Proliferation of Taxes, Fees and Charges (TFCs) in the Air Transport Industry in Africa: Leading to very Expensive Ticket Cost for Passengers, Consumers and Travelers especially during this Covid 19 chaos.

Further to one of my articles on taxation and charges in Africa’s air transport industry titled “Over taxation and charges in Africa: Case Study, aviation industry in Africa” published on August 13th, 2018 https://www.dhirubhai.net/pulse/over-taxation-africa-case-study-aviation-industry-nowel-ngala/

There have been a series of requests to undertake deeper analysis of the existing Taxes, Fees and Charges (TFCs), the consumer, passenger or traveler pays in a flight ticket traveling within Africa. By examining the exact number of Taxes, Fees and Charges, amounts, types, appellation, origins and the impact of these taxes, fees and charges to the air transport industry in Africa. This is therefore a follow up paper to summarize the findings of our investigation.

The UN International Civil Aviation Organization – ICAO’s Policies on Taxation in the field of International Air Transport as contained in Doc 8632 makes a conceptual distinction between a charge and a tax in that: 

A charge is a levy that is designed and applied specifically to recover the costs of providing facilities and services for civil aviation. 

A tax is a levy that is designed to raise national or local government revenues, which are generally not applied to civil aviation in their entirety or on a cost-specific basis. 

By these definitions imagine if all taxes were taken off and we were left with just charges that are specifically levied for cost recovery purposes for providing facilities for civil aviation, how affordable will traveling within Africa become. Yet there has been some skillful maneuver to unobtrusively slide in some fees to make travelers/passengers pay for especially during this Covid 19 mayhem.

These Taxes, Fees and Charges (TFCs) as further emphasized by ICAO must be non-discriminatory, cost related, transparent and there must be consultation of users before there are put in place. However, as we examine further, we see the continuous proliferation of these taxes, fees and charges by various countries in Africa indiscriminately.

As a traveler, consumer or passenger, when traveling within Africa particularly within Sub-Saharan Africa and worst within Central and West Africa, over 50% to 40% of the total air ticket cost paid to the airline transporting you are for taxes, fees and charges that is paid back to governments. Basically, airlines are used as taxes, fees and charges collectors on behalf of governments, and most of these taxes, fees and charges are not reinvested for aeronautical development but are simply diverted for other purposes. 

The general impression is that airlines are the ones charging exorbitantly and this notion is perceived further differently when it is from privately owned airlines, who have no direct support or subventions compared to government owned airlines that are exempted from most of their local taxes, fees and charges, which makes competition very uneven.

A basic example is a passenger, traveler or consumer traveling within West Africa from Benin (COO) to Senegal (DSS), the ticket layout is as follows:

The total taxes, fees and charges when compared to the net fare is 118% higher. 

Take note that there are over seven different taxes, fees and charges to be paid to the government of Benin, which includes $6.30 security tax (BJ), $1.8 fiscal tax (BJ), $54.30 tourist development tax (BJ), $8.10 aeronautical development charge (DX), $11.90 passenger security charge (J7), $3.60 air passenger solidarity tax (JU), $10.70 passenger service charge (ZD) and because the passenger transit via Togo (LFW) he also pays in addition $5.40 embarkation tax (YH), $9.10 passenger service charge (VO), $3.60 terminal ground transport fee (J8) to the government of Togo and upon arrival in Senegal (DSS) the passenger pays $12.00 immigration user fee to the government of Senegal. 

All of these taxes, fees and charges are listed on the flight ticket, meanwhile the airline receives a net amount of $107 USD, looking at the above example, and expected to cover all operating costs including fuel, catering, ground handling, crew accommodation, GDS, maintenance, aircraft leasing etc.

Some airlines add charges referred to as YR or YQ fuel surcharge amounts to enable them pay some of the operating costs. But this amount still remains insignificant as passengers are very sensitive to ticket fare prices that airlines are careful not to price themselves out of the market with high fares, especially on competitive routes.

On an average over 200 different types of taxes, fees and charges exist in the five regions of Africa (West, East, Central, South and North). Some examples include solidarity tax, stamp tax, departure tax, safety charge, airport tax, embarkation tax, tourism tax, environmental tax, immigration fee, infrastructure tax, foreign travel tax, tourist development tax, fiscal tax, aeronautical development tax, check-in desk charge, foreign travel tax, passenger service charge and the list keep going.

The above tables indicate comparison of taxes, fees and charges in terms of total number per region and total amount per region. West Africa region leading with the highest total number of taxes, fees and charges and highest amount as well, second by Central Africa region.

After the timid resumption of operations to only about 48% Post-Covid-19 peak period, we continue to witness high increase in some tax, fee and charge amounts as well as the introduction of new ones, under the pretext of putting into place covid protocol screenings at airports. Meanwhile passengers or travelers are still required to pay for testing at various centers before traveling and upon arrival at their destination. Double taxation, fees and charges that only continuous to increase the cost of air transport in Africa.

What continuous to be very disturbing is the ease at which the air transport sector in Africa particularly within West and Central Africa is perceived as a cash cow for the recovery of debt amounts from loans and international aid borrowed and granted to states. There is inelastic borrowing and request for aids because the air transport sector can easily be overtaxed for recovery and payments of such loans. Meanwhile the sector remains poorly equipped with low volumes and poor connectivity as a result of high-ticket costs for travelers and high operating cost for airlines, respectively.

The fundamental question using Tanzania’s example is, how come for the last five years without any borrowing, request for loans or receiving aids, the government of Tanzania was able to restore six aircraft into the Tanzania airline? Yet there was also tremendous economic development across the country. It is a model to follow.

During our first discussion on this subject, our focus was to draw the attention of our governments on the impact of how over taxation and charges hinders growth and survival of the air transport sector in Africa. Our focus on this second paper as a follow up of the first write up is on consumers, travelers and passengers to advocate.

It is imperative to understand that consumers, travelers and passengers are the ones paying these taxes, fees and charges through flight tickets cost collected by airlines on behalf of governments. It is therefore important for them to participate as a joint effort in not only trying to understand the purpose of these so many taxes, fees and charges but also to be aware and question its origin and how it is being put to use for the effective development of the air transport industry in Africa which is still lacking behind seriously, with over 66% of African cities not directly connected to each other.

As a consumer there should be value for your money. What you pay for, is what you should get and also appropriately used. If you pay for an infrastructure developmental tax or tourism tax, it should be solely put into use for that purpose, but is this being done? Is another topic for further discussion because governments put in place these taxes just to raise revenue for other purposes while the air transport sector in Africa continuous to be ignored.

As a traveler if taxes, fees and charges are collected for infrastructural development purposes we need to see the solid, good and attractive amenities to help elevate our journey experience. Same with tourism tax for example, we need to see the development of touristic sites to encourage leisure traveling. But nowadays as a result of the devastating impact of Covid, leisure traveling has shrunk. Should we therefore continue to pay for this tax? Shouldn’t such taxes be scrapped off as support to the air transport sector to pick up post Covid 19?

The key elements to guide you are that these taxes, fees and charges should be non-discriminatory, cost related, transparent and you should be consulted as suggested by ICAO in their policy document. But is this the case? I leave you to answer that while I take another example to illustrate a discriminatory tax on the air transport industry in Africa today.

Back in 2005, during the World Economic Forum meeting the former French President Mr. Jacques Chirac introduced the concept of a tax on airline tickets to generate financial aid for developing nations. In February 2006, the French government invited over 100 countries to a ministerial conference in Paris in an attempt to persuade and push for the implementation of the ‘solidarity tax’.

Despite a widespread rejection by the council of economics and finance ministers of the Europeans Union – ECOFIN and the African Union both publicly expressing their opposition to this tax, some African countries particularly the French speaking countries deliberately went ahead to impose the solidarity tax to consumers, travelers and passengers specifically for air transport in Africa which is still being collected today. How inappropriate is this? For the air transport sector to be overtaxed in order to pay back for loans and aids, when the sector doesn’t benefit from this tax. What is therefore received in the name of financial aid is paid back in the form of a ‘Solidarity tax’ collected from the few Africans who use air transport services in some countries, because air travel is still considered as a luxury not necessity despite its underlining contribution to the socio-economic development of the region. How does this boost travel in Africa?

The International Air Transport Association – IATA’s position on this has been very clear opposing such a discriminatory tax and advocating for its abolition. The fact is such an initiative is based on the erroneous assumption that air transport in Africa is a luxury item only enjoyed by a privileged few. Absolutely wrong because imagine Africa without aviation, see the substantial contributions it provides to economic development, connecting people and goods, businesses, facilitates inward investments and productivity and helps make people meet their socio-political, economic and humanitarian needs.

Today in Africa people can travel from Central Africa to West Africa, to South Africa, to North Africa and to East Africa in one day. Imagine if these airlines weren’t there to provide these services. Why over tax this service? which is killing it, limiting travel volumes, forcing airlines to go bankrupt and shut down. This only takes us back during the period when to travel from one African country to another, passengers had to go via Europe and return the following day to their destination. 

Since independence of most sub-Saharan African countries over 47 airlines have come and disappeared with a life span of maximum 05 years and those that survive above this period accumulate debts of a minimum of over $245 million USD, which ends up still costing taxpayers when they go to chapter 11. Something absolutely needs to be done and quick enough within this area in Africa.

Imposing such taxes, fees and charges especially when the air transport sector doesn’t benefit from any return on investments only discourages passenger traffic and inhibit the air transport sector’s ability to drive economic development to its full potential.

We are therefore of the school of thought that as a result of the covid impact with the travel and tourism industry being the most affected, in order to help remedy the air transport industry in Africa, a close examination should be carried out at country level to restructure the entire aviation sector involving all players, place the sector in a different financial and economic regime out of public finance and control, out of public administrative considerations because of its specificity, its sensitivity, its complexity, need for nurturing and its fundamental contribution to the socio-economic development of nations and the continent as a whole. 

This can be by putting in place at country level for example a governing aviation council that will re-examine the restructuring of this service, strategize and propose bold and solid steps to improve this sector in Africa as a whole, given that nations have sovereignty on their country based taxes, fees and charges that are imposed on air transport services but which collectively affects growth and development of the air transport sector in Africa in general especially by abolishing some of these taxes using the following pathways:

Taxes, fees and charges mostly emanates from the Finance Ministries in most governments to generate revenue for the state. You will agree with us somehow that finance experts don’t usually have a full picture of the aviation sector, in-depth analysis for the purpose of informed decision making during tax levying exercises and are not associated during negotiations for Bilateral Air Service Agreements – BASA amongst states that takes different dimensions into consideration from inception and usually carries details involving finance issues as well, yet finance experts are the ones in most cases who determined and outlined the taxes on aviation matters based on the revenue they need to generate. 

Meanwhile the aviation sector and its activities are usually embedded under the auspices of Transport Ministries or in some cases Aviation Ministries, hence creating a gap and giving room for lapses during the effective running of the air transport activities in most countries. 

This has an oversight particularly in the establishment of these taxes because Finance Ministries are not by themselves experts in the peculiarities pertaining to the aviation sector to clearly take into consideration some specificities. It is therefore important to have serious considerations for a synergy of efforts in order to avoid any such oversights. Hence the need for the aviation sector to be moved out of the normal public finance regimes and functioning and handled apart using an aviation governing council made up of a synergy of a cross section of all stakeholders in order to improve services. 

Reasons being that, in Africa, the air transport industry plays an important role of providing nations, markets and regions with the fastest means of connectivity and some countries use their national carriers as a flag bearer to expose and improve tourism not paying attention to the fact that the airlines are a permanent burden to taxpayers, meanwhile other nations run their airlines as a pure business driven entity with a profit driven approach. But with the very tiny profit margins running an airline in Africa, whatever the case, these airlines do not survive.

ICAO and IATA shouldn’t end at policy elaboration, advocacy and lobbying, it has to be able to go beyond this scope even if it means revisiting and rectifying the Chicago Convention of 1944 that failed to prohibit aviation taxes and user fees, as the only legal instrument that is ratified by states to institute sanctioning especially on taxes, fees and charges that are discriminatory and not transparent. We will strongly move that motion for such amendments because since 1944 times have change, the world has evolved, and aviation has become something else, hence the need for amendments to legislature.

With the huge impact of covid on the aviation sector, bold steps have to be made towards this direction in order to ameliorate the situation to enable the air transport industry in Africa thrive. No more time for the long discussions, we all know where it hurts, what is supposed to be done and how to go about it. It is therefore time for action now and this involves all including you, our esteemed passengers, travelers and consumers.

Written by: Nowel Ngala - Chairman, Aero-Political Committee AFRAA