KATHMANDU, JANUARY 30
Domestic airline companies and ticketing agents report hitting significant turbulence in business following the implementation of 13 per cent value added tax (VAT) on airfares by the government.
According to stakeholders, air ticket sales have slumped by 40 per cent as airfares became expensive in the domestic market, leading many air passengers to opt for cheaper alternatives.
Earlier, the government had introduced the policy through the budget for the financial year 2023-24 to be implemented from July last year, mandating air transport services to register for VAT. A petition filed by the Nepal Association of Tour and Travel Agents (NATTA) had delayed the process, but the decision was later implemented in mid-September.
NATTA had also laid concern over the government's decision stating that it will make Nepal an expensive tourist destination in Asia and discourage tourist flow into the country.
Ramesh Thapa, president of NATTA and managing director of Moon Sun Travel and Tours Pvt Ltd, said that the 13 per cent VAT imposed by the government, in addition to Nepal being an expensive tourist destination in Asia, is likely to further slow ticket sales in the off seasons in coming months.
"The price difference in a round trip ticket for long haul flights stands at over Rs 30,000. In the past, demand was high while supply was low, which compelled people to pay hefty airfares. With people looking for cheaper prices, booking online from India has increased, which has led ticket sales to go down. At present, supply has also surged significantly, creating a competitive environment in the airline industry. The VAT is likely to affect revenue collection of airline companies and may make it harder for them to sustain as well," he said, adding that cyber attacks on tour operators are also another factor the sector is struggling at present.
Similarly, Pramod Dahal, senior vice-president of NATTA and managing director of Columbus Travel & Tours Pvt Ltd, reiterated that the VAT and increased use of online portals for ticket booking has affected ticket sales of domestic ticket agencies by 40 per cent.
"A long haul flight ticket from Kathmandu is pricier by over 40 per cent compared to New Delhi, India. Also, the increasing use of online methods for cheaper alternatives, savings up to Rs 40,000 while flying from New Delhi on long haul flights, and the monopoly of certain airlines has affected ticket sales here. Pricier tickets have led both domestic and foreigners to either fly or use road options to Delhi and fly long haul from there. Also, Bangladesh being a one-hour flight destination costs around Rs 30,000, while a flight to New Delhi from Kathmandu which has a similar time frame costs around Rs 10,000 for one way due to a monopoly in the airline sector," he said, adding that the government acted indifferent towards the ticketing agencies despite being a service sector, mistaking it as a source of generating revenue.
Meanwhile, Arjun Dhakal, director of the Policy Analysis Section of the Inland Revenue Department, explained that the government introduced the VAT to make air travel more practical and scientific as per the international practices. "Inbound passengers to Nepal have already been paying the VAT imposed by countries they are flying from and we simply want to implement the same practices here as suggested by Nepal's international development partners."
He also said that while the VAT will make airfares expensive, prices fluctuate time and again and are done so by the airlines depending upon the demand of passengers and that the VAT will also assist airlines in terms of credit possibilities and safer transactions.
According to online portals, a cheap round-trip flight from Kathmandu to New York is priced at over Rs 170,000, and the same trip from New Delhi costs over Rs 119,286. Meanwhile, a flight from Kathmandu to Delhi starts from Rs 9,000.
Thapa also called on the government to formulate an action plan at the earliest to bring the newly built international airports into full operation alongside accelerating road development projects connecting major Nepali cities. He also said that the Nepal Airlines Corporation (NAC)'s upgradation should be prioritised keeping in mind the recurring issues with NAC's aircraft becoming grounded due to technical reasons, which will eventually force Nepalis and tourists to pay heftier airfares while flying from other international carriers.
