Ukraine Could Cut VAT On Domestic Flights

The Ukrainian Government continues to move towards abolishing value-added tax (VAT) on domestic flights. It’s not a particularly new move. The government has shown an interest in reducing VAT on domestic flights since the travel downturn. But there fresh momentum behind the campaign as senior government figures speak out in support.

The Ukrainian Government is talking about cutting VAT on domestic flights. Photo: Ukraine International Airlines

Ukrainian Governments wants to support their airline industry

The standard VAT rate in Ukraine is 20%. The idea is not to abolish VAT on domestic flights – the Ukrainian legislative framework makes that relatively difficult. It’s far easier to reduce the rate. How far would this reduction be? 0% is the figure being bandied around.

Ukrainian Prime Minister, Denys Shmyhal, has promised to reduce the cost of domestic flights. It’s a popular idea with voters and airlines. Local airlines see cutting VAT as a good way to stimulate travel demand.

The Ukrainian news agency, Unian, quotes Infrastructure Minister Vlayislav Krikliy, saying he expects to see a 0% VAT on domestic air services come into effect relatively soon.

“Bill 2425 is set to abolish VAT…. I expect that this year we will remove this incomprehensible barrier,” the Minister says. “It is very important that we find any kind of source to show that aviation is not some secondary subject to us, that it’s a priority, an important industry.”

That will be welcome news for Ukraine’s airlines. They’ve long campaigned to see VAT reduced on local airline tickets, arguing it stymies demand and growth. During the early onset of the travel downturn, SkyUp Airlines argued the domestic aviation sector’s future was entirely dependant on government action.

“This segment as never before requires the abolition of VAT so that we can maintain affordable ticket prices and expand our domestic route network,SkyUp Airlines said in mid-2020.

SkyUp Airlines said Ukraine’s domestic airline sector was entirely dependant on Government action. Photo: SkyUp Airlines

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Earlier pleas for assistance fall on deaf ears

Late in 2020, Ukraine’s biggest airline, Ukraine International Airlines, wrote an open letter to the Ukrainian President, Volodymyr Zelensky. Citing a tough year and a decision to suspend flying that the government made, UIA asked for financial assistance in the form of a loan and/or a deferral of payments owed to state-owned enterprises.

That plea largely fell on deaf ears. But the Prime Minister revived the idea of financial assistance for the domestic aviation sector last month. A reduction in the VAT rate may the perfect way to do that.

Eastern Europe remains one of the world’s most sluggish aviation markets. According to OAG data, seat capacity in March is down 43.7% on last March. However, there are more seats on offer across Eastern Europe this month than there were in February.

In 2020, in the absence of financial assistance, UIA let go around 1000 employees. Photo: Ukraine International Airlines

As airline executives across Ukraine have been quick to point out, most European Governments are doing something for their airlines. That ranges from outright bailouts to tax breaks to loan deferrals to a suspension of government fees. Ukraine’s airlines argue it’s past time their government steps up. Vlayislav Krikliy agrees. He told Unian;

“All European countries, without exception, helped their air carriers in various ways – by offering deferments, acquiring shares, providing interest-free loans, and offering irrevocable financial assistance, while our government found no sources to this end.”

After a year of waiting, this time Ukraine’s airline industry hopes the Ukrainian Government might finally come through.