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The United Arab Emirates (UAE) is retroactively seeking VAT (value-added tax) exemptions for three UAE airlines, claiming the taxation violates globally accepted standards.
The UAE embassy recently forwarded the request for the leaflet to the foreign ministry after the prime minister personally assured UAE diplomats that the exemption would be considered, officials said.
Emirates, flydubai and Etihad have urged Bangladeshi authorities to waive about Tk 6 billion in VAT on aeronautical and non-aeronautical charges between 2008 and 2018.
The UAE embassy in Dhaka recently forwarded letters from Emirates, Etihad and low-cost airline flydubai to authorities.
“The imposition of taxes such as VAT retroactively does not meet internationally accepted standards as airlines cannot recover (claimed) VAT from customers,” read the letter sent by the embassy.
“Therefore, the VAT imposed by the Bangladeshi authorities will cause significant financial loss to Emirates Airline,” it said.
Mohamed Alhammadi Regional Manager Emirates Bangladesh, Kumar Sankar Regional Finance Manager Etihad (Indian Subcontinent, Asia Pacific and Far East) and Arbind Kumar Senior Vice President (Finance) Flydubai wrote the letter to the NBR Chairman.
The ministry recently forwarded the letter for consideration by the National Bureau of Revenue (NBR).
However, a senior NBR official said the board usually actively considers issues that have national priorities or are relevant to bilateral relations.
The official said the Civil Aviation Authority of Bangladesh (CAAB) does not collect the VAT levied on the different services of these airlines.
The official added that the matter had entered legal proceedings as the injured party filed a petition challenging the VAT claim with the relevant authorities.
In July 2015, VAT was levied on relevant fees in the North District since January 2009.
NBR officials said the unrealized VAT was discovered after a careful review of the CAB Chartered Accountant’s annual audited financial report.
In August 2017, the Supreme Court Appellate Division ruled that VAT applies to air charges.
The Chief Justice reviewed the judgment and ruled in favor of NBR.
“The Civil Aviation Authority’s imposition of VAT in Bangladesh on charges related to passenger or cargo international air transport services directly contradicts the acceptable taxation policies promulgated by the International Civil Aviation Organization, a United Nations-designated body,” the letter reads.
Bangladesh is a signatory to the Convention on International Aviation (Chicago Convention) and submitted its notification of accession to the Chicago Convention in December 1972.
“International air transport services are generally zero-rated or VAT-exempt under international standards and are entitled to recover input VAT. As mentioned above, the current system in place in Bangladesh does not meet this standard.”
Some air transport-related services were excluded in the 2018-19 Budget.
CAAB has been taxing aeronautical and non-aeronautical charges since July 2018, and Emirates, Flydubai, Etihad and other airlines are paying accordingly.
Three of the airlines were unable to recover the VAT from passengers because the charge was not directly related to passenger costs, they said.
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