…Reduce price but fail to remove VAT
By Cecil MENSAH
It appears domestic airlines have conflicting mathematical formulas for calculating reductions that domestic air travellers are supposed to see on their fares in the wake of the government’s abolition of the 17.5 Value Added Tax (VAT) on domestic air fares.
Business Day Ghana’s monitoring of goings-on in the domestic flight sub-sector has revealed that both Africa World Airlines (AWA) and Starbow have both not completely applied the formula in reducing their fares.
For instance, AWA has reduced its fare for two-way flights on the Accra-Kumasi route by only GHC40, appearing to cheat its customers by GHC65. On its part, Starbow has reduced its fare by GHC100 for the same route, also apparently cheating customers by GHC7.00.
Independent calculations show that removing the 17.5 percent VAT should result in AWA’s fares pushing downwards by GHC115.6 while Starbow’s price should fall by GHC107.1.
Interestingly, AWA, which is owned by popular Ghanaian chief and a member of the Council of State, Togbui Afede, has cut its air fare by 5.88%.
On the other hand, Starbow Airlines, owned by Lebanese Anthony Sawuud, chops off a bigger margin of 15.87%, albeit it still lower than the 17.5 reduction anticipated.
For many observers, the two main domestic airline operators seem not to come to terms with the calculation of the VAT removal on the fares.
The decision
At the beginning of April, Business Day discovered an apparent conflict in the response of domestic airline operators to the removal of the 17.5 VAT on domestic air tickets.
The removal, which took effect with legislative amendments to the tax regime in late March, was expected to result immediately in the reduction of air ticket prices.
As of the first week of April, the two main domestic airline operators in the country had reacted in diametrically opposite fashion.
Passengers of AWA were paying prices prevailing before the VAT removal while travellers on Starbow Airline flights were paying reduced prices.
Government had intended to force down the price of domestic air tickets when Ken Ofori-Atta, the Minister for Finance, indicated the removal of the VAT during the presentation of the 2017 budget in early March.
When this reporter placed a call to the point of sales and bookings of the Starbow, a lady by name Nana Ama revealed that the cost of traveling from Accra to Kumasi, the Ashanti Regional capital, had been reduced from GHC315 to GHC255.
Thus, a return ticket on a Starbow flight for the Accra-Kumasi route now cost passengers GHC530, Business Day further gathered.
Formerly a two-way Starbow flight from Accra to Kumasi was GHC630; meaning that GHC100 had been taken off the fare.
Further checks by the Business Day at the point of sale of AWA revealed that no reductions had been effected in the pricing of tickets. A call placed to a retail point of the airline elicited confirmation that passengers of AWA were still being charged GHC680.
In the most recent follow calls, Business Day were informed that the new wo-way fare for the Kumasi route was GHC640, suggesting a reduction of GHC40.
Business Day’s attempts at getting the management of AWA to speak to the price differentials fell through as airline staff indicated the establishment had no corporate affairs office.
When this paper pressed further, the receptionist at the Airport City office of the AWA insisted that the only person who could speak on the issue was one Captain Thompson but he was unavailable.
Earlier, Simon Allottey, who is the Director-General (D-G) of GCAA, had led calls for the reduction of fares in the sector when he moderated at a session of the Second International Civil Aviation Organization (ICAO) meeting on the ‘Sustainable Development of Air Transport in Africa’ conference.
According to Allotey, the aviation regulatory authority would push for the reduction in the fares of domestic air transport fares to boost the industry.
“The removal of the 17.5 percent VAT should see reduction in the pricing of fares latest by the end of the first quarter,” he told the gathering of experts.
He said the industry must see a reduction in fares to enable more and more patronize domestic flights and park their cars.
In a bid to boost and save the domestic flight industry, the authority had advocated for the reduction, which was warmly welcomed by the new government.
Similarly, Cecilia Dapaah, Minister for Aviation, had anticipated that the removal of the VAT would result in fares going down drastically.
