The International Air Transport Association (IATA) has concerns regarding the recent hike in taxes on international travel from Pakistan.
IATA represents over 330 airlines and more than 80% of global air traffic, including Pakistan International Airlines. The government announced a big jump in FED for international flight tickets in the new budget. From July 1, 2024, economy and economy plus tickets will see FED more than double to PKR 12,500.
What is the Federal Excise Duty?
The government imposes a Federal Excise
Duty (FED) on specific products and services. Pakistan uses the FED on
international flight tickets to generate revenue. This tax has provided
significant income, but recent hikes have sparked worries in the travel
industry.
Details of the Latest FED Hike
The recent modification causes a huge
jump in FED for budget and mid-range tickets. People who once shelled out
Rs5,000 in FED for cheap seats now face a Rs12,500 bill. Fancy flyers feel the
pinch too, as Club Class tickets to the USA now cost Rs350,000 in FED up from
Rs250,000. Other destinations see similar hikes.
The Government's View
The
government likely put in the FED increase to bring in more money. They may
expect significant revenue benefits from the new policy.
IATA's Concerns
Effects on Economy and Travel
IATA's Pakistan Country Manager, Mr.
Feroze Jamal, highlighted how the higher FED hurts Pakistan's air travel and
economy. Air transport plays a crucial role in Pakistan's economy. It supports
manufacturing and tourism and creates important business connections. The
aviation sector backed 425,000 jobs and added $2.8 billion to Pakistan's GDP
before COVID-19 hit. The constant FED hikes will discourage travelers, cut air
travel to Pakistan, and damage the country's economy. IATA urges the government
to reconsider and scrap the recent FED increase.
Clash with Legal and International Promises
IATA claims the increased FED on international tickets contradicts the Federal Excise Duty Act 2005 and ICAO guidelines. The Act states the duty affects "services provided or rendered in Pakistan," excluding international flights.
Taxes on global air travel
also clash with ICAO-supported tax policies. Pakistan, as a Chicago Convention
signatory, committed to reducing and eliminating taxes on international air
transport. ICAO guidelines tell member countries to decrease and remove all
taxation forms on international air transport sales or use.
Ticket Prices Climb, Travel Slows Down
The new tax greatly increases the cost
of airfare. For example, travelers on long flights to Australia or New Zealand
might face an extra Rs. 60,000 ($350 USD) on top of their ticket price. This
can more than double the total cost. Even short flights to popular places in
Asia and the Middle East are affected, with extra taxes of Rs. 30,000 ($175
USD) or more.
What This Means for Travel and Tourism
Business Travel
The higher tax is likely to hit
business travel hard. Companies may be less willing to pay for costly business
class tickets, especially if executives can have meetings online. This could
mean fewer foreign business people visiting Pakistan, leading to less foreign
investment and fewer business chances.
Tourism
Pakistan's tourism industry could also
suffer from the higher taxes. Travel for religious reasons, like Umrah pilgrimages,
could become much more expensive for families. Budget tourists might also skip
Pakistan for places with lower travel costs. This drop in tourism would mean
less money for hotels, restaurants, and other businesses that depend on
visitors.
A Wider Impact on the Economy
The effects of the tax increase won't
just hit the travel industry. Fewer travelers mean less foreign money coming
into Pakistan, which is crucial for the country's economy. Also, airlines might
cut back on flights if there aren't enough passengers, leading to job losses in
the aviation sector and related industries.
Other Possible Solutions
Some experts suggest that the
government could have found other ways to raise money without hurting the
travel industry. For example, a flat tax on all classes of tickets instead of
targeting premium cabins would spread the burden more evenly and might have a
less severe impact on travel.
The Future of Flying in Pakistan:
Uncertain Skies Ahead
The recent increase in Federal Excise
Duty (FED) on international air travel casts a shadow over Pakistan's aviation
industry. This section explores the potential challenges and opportunities that
lie ahead.
Challenges of Increased Taxes
Potential Drop in International Flights
Airlines
Reconsidering Routes:
With fewer passengers due to higher costs, airlines might choose to adjust
their routes, leaving Pakistan with fewer flight options.
Reduced
Competition, Higher Prices:
Decreased competition among airlines could lead to a rise in ticket prices,
further discouraging travel.
Isolation from Global Networks
Difficulty
for Businesses and Tourists:
Traveling to and from Pakistan could become more expensive and inconvenient,
hindering business opportunities and tourism.
Slower
Economic Growth and Cultural Exchange:
Limited travel can impede economic growth and cultural exchange between
Pakistan and the global community.
Opportunities for Improvement
Government Policy Reversal
Rebound
in Air Travel: A
revised FED could lead to a resurgence in air travel, bringing more visitors
and business to Pakistan.
Increased
Number of Visitors and Business Opportunities: Lower travel costs could attract more
tourists and investors, boosting the economy.
Industry Adaptation
Airlines
Finding Ways to Cut Costs:
Airlines might implement cost-cutting measures to maintain affordability
despite the FED increase.
Innovation
in Service Delivery and Operations:
Airlines could innovate by offering new services or streamlining operations to
provide greater value for passengers.
Travel Tips for Passengers in Uncertain Times
Staying Informed
Planning Trips Considering Increased
Costs: Travelers should be aware of the higher travel costs and plan their
trips accordingly.
Booking Strategies
Booking Flights Well in Advance: Booking flights early might help secure better deals before prices rise further.
Looking for Package Deals: Package deals that combine flights with accommodation or activities could offer some cost savings.
Long-Term
Impact: A Call for
Monitoring and Potential Adjustments.
Uncertainty and Potential Economic Downturn
Close
Government Monitoring:
The government needs to closely monitor the situation and its impact on the
economy.
Readiness
to Adjust Tax Policy:
The government should be prepared to revise the FED if it leads to unforeseen
negative consequences.
IATA's Recommendation: A Call for Cancellation
Cancellation
of Increased FED: The
International Air Transport Association (IATA) strongly urges the government to
cancel the recent FED increase to maintain the aviation sector's growth and its
contribution to the national economy.
FAQs
What's the new FED rate for economy
tickets?
The rate varies by destination region. Check official government notices for exact rates.
How will higher FED affect travel to
different regions?
The impact will differ based on the new FED rate for each area. Some destinations may become much more expensive.
What is IATA's main objections to the
FED increase?
IATA claims it will increase travel costs, discourage trips, and hurt the aviation industry's recovery.
How can travelers reduce the impact of
higher FED?
Consider booking early, looking at different travel dates or destinations, or finding airline deals and promotions.
What can the government do to help the
aviation industry?
They could explore other revenue sources, improve infrastructure, and offer tax breaks or incentives to airlines.
