VAT exemption for aircraft rentals

To reduce the cost of renting aircraft used for passenger transport, the government has proposed to exempt it of value-added tax (VAT) in the budget for the 2025-26 fiscal year.

Finance Advisor Salehuddin Ahmed presented the budget of Tk 7.90 trillion at 3pm on Monday.

In it, the interim government proposed exemptions from VAT and excise duty in several sectors to provide relief to the public.

As part of this, a VAT exemption has been proposed for aircraft rentals.

Currently, a 15 percent VAT is imposed on aircraft rentals. Under the existing system, the first instalment is exempt from VAT.

However, when subsequent instalments are sent through Bangladesh Bank, VAT is levied again on the same fare.

This has led to a conflict with the government’s policy for the airline sector.

As a result, airlines are required to pay a significant VAT on aircraft rentals, directly affecting passenger fares.

The cost is even higher for flights operating on international routes, as most of the aircraft are rented from international sources, and the payments must be made in US dollars or other foreign currencies.

In Bangladesh, a large number of aircraft operated by the state-owned Biman Bangladesh Airlines and private carriers are leased.

These leases require significant monthly payments, which are also subject to VAT.

This raises the operating costs of the airlines as well as driving up ticket prices.

Industry stakeholders claim the pressure on airlines will be eased to some extent if the VAT imposed on aircraft rentals is exempted.

“Our main demand was to reduce the VAT on aircraft parts,” Mofizur Rahman, managing director of Novoair and secretary general of the Aviation Operators Association of Bangladesh (AOAB), told bdnews24.com.

“Whenever something is reduced, it is a relief for us. At least it is a positive step,” he added.