A complete guide to the new taxes on airlines tickets and travel destinations

Customers will have to pay anywhere between Rs 75,000 to Rs 250,000 more depending on the type of ticket they chose, and the destination they’re flying to

LAHORE: The Government of Pakistan has levied a new round of Federal Excise Duty (FED) on airline tickets. The new duties were approved by the National Assembly on February 20 as part of the amended Finance (Supplementary) Bill 2023 moved by Minister of Finance, Mohammad Ishaq Dar. 

The new duties are applicable to customers who purchase club class, business class, and first class tickets. The rate of the duty levied upon passengers will depend on their respective destination. The Government of Pakistan has currently levied four different duty amounts that passengers will have to pay for different destinations. They have utilised the International Air Transport Association’s  (IATA) Traffic Conference Areas to delineate between the different duties that are to be paid. 

The duties to be paid in accordance with the Government of Pakistan’s utilisation of the IATA Traffic Conference Areas are as follows: 

Traffic Conference Area  Destination  FED 
1 North, Central, South America and Environs Rs 250,000
2 Middle East and Africa Rs 75,000 
Europe Rs 150,000
3 Far East, Australia, New Zealand and Pacific Islands Rs 150,000

 

The duties have been levied as part of the Finance (Supplementary) Bill 2023 to enhance the Government’s tax collection, and enable it to raise Rs 170 billion in tax revenue. The purpose of the new fiscal measures is to unlock $1.1 billion from the International Monetary Fund. 

Does this affect customers travelling in Economy Class? 

Addressing the elephant in the room, the FED in its current iteration is not applicable to customers travelling on economy class fares. 

What even is a Federal Excise Duty? 

A Federal Excise Duty is a federally administered duty levied on goods and services in Pakistan at varying rates. FED can be rendered on the following: 

  • Goods produced or manufactured in Pakistan;
  • Goods imported into Pakistan
  • Goods produced in the non-tariff areas, and then brought into the tariff area for sale
  • Services provided or rendered in Pakistan 

The scope of the tax on services is limited to the Islamabad Capital Territory. According to the constitution, sales tax on services, which replaces Federal excise duty (FED), must be imposed and collected by the provinces or Islamabad on services provided within their respective territories.

How did the FED on airline tickets come about? 

The imposition of a FED on airline tickets is originally part of the original Finance (Supplementary) Bill 2023 approved by the Cabinet on February 15. The Bill ordered that a tax equivalent to 20% of the ticket’s fare or Rs 50,000, whichever was higher, be levied on passengers travelling in business class, first class, and club class. 

The measure, however, stirred controversy which was brought to light at the meeting of the Senate Standing Committee on Finance and Revenue on February 16. At the meeting, Senator Saleem Mandviwalla informed the Finance Division that the Aviation Ministry had expressed concerns about the proposed 20% tax on Business and First Class tickets, citing the variability of ticket fares. In response, the Senator suggested that a specific amount be set for each destination instead of imposing the tax. 

Furthermore, he suggested that this would serve as an alternative approach to the proposed tax, which the Ministry deemed impractical due to the fluctuating nature of fares.

What is a club class? 

One of the standout features is the introduction of the ‘club class’ as part of the fare categories which will have the FED levied upon them. The most basic definition of club class is that it is a fare category between economy class, and first class. 

Amer J. Randhawa, a Lahore based travel consultant, explained the category to Profit “It is simply business class. Different airlines have different terminologies. Club is a general term used,”. 

Does this affect domestic travellers? 

Randhawa explains to Profit that the FED is applicable only on customers travelling outside of Pakistan, and not internal flights. 

What about outbound connecting flights? 

In the odd situation that customers might want to pull off a jugaar and only have their flight from Pakistan to a connecting destination as economy, and the remaining journey as business or first class, that is not possible. “If the ticket is bought in Pakistan then the entirety of the tax levied on both tickets will be applicable,” Muhammad Nadeem Sharif, Former Chairman Travel Agents Association of Pakistan (TAAP) tells Profit. 

Similarly, “You’re always charged on the higher category of fare,” Randhawa tells Profit. 

What if you were to depart from Pakistan, and then purchase another ticket from your new departure port to another destination? “The laws of that country will be applied on you since your journey from Pakistan is over,” Sharif explains to Profit. 

What are Traffic Conference Areas? 

The process of fare construction is contingent upon the regions which the customer intends to travel to, from, and via. To streamline the procedures associated with fare construction rules, routings, and fares, IATA has geographically classified the world into Eastern and Western hemispheres, and further categorised them into Traffic Conference Areas (TC Areas) and sub-areas. 

The TC Areas encompass three cardinal regions, namely Traffic Conference Area 1 (TC1) encompassing the Western Hemisphere with sub-areas like North American, Central American, South American, and Caribbean sub-areas, while Traffic Conference Area 2 (TC2) and Traffic Conference Area 3 (TC3) embracing the Eastern Hemisphere encompass sub-areas such as European, African, Middle East, South Asian Subcontinent, South East Asian, and South West Pacific. 

However, it should be noted that the sub-area divisions may not always align with the geographical location of countries. For instance, IATA deems certain North African countries, including Algeria, Morocco, and Tunisia, to be part of Europe.

Will the measure yield dividends? 

Sharif estimates the total number of passengers that buy first and business class tickets to be 10-15% of the total passenger volume. How much the Government estimates it will earn through this measure, or how many passengers will slip down to the economy to avoid the FED will be made evident in the months to come. 

It is entirely also possible that, on the assumption that first and business class passengers have the means which this measure does assume, first and business class passengers might just break up their international journeys. They may only seek to travel the outbound flight from Pakistan on economy, and then later pause their journey at their new destination to obtain a new ticket to avoid paying the higher FED altogether. 

What are the impacts on the industry as a result of all of this? 

“The sector was already encumbered with a lot of problems, and the Government has gone and added to our problems,” Sharif tells Profit. “This will increase the cost of travelling for the passenger, and naturally this will lead to problems for the sector when there will be fewer passengers choosing to fly,” Sharif continues.

“We will have to just take it. The industry hasn’t fully recovered from the dual rates Emirates and Turkish stopping their local selling of tickets, and now this has been implemented, ” Randhawa tells Profit. “The funny thing is that flights are still full, and you cannot find an empty seat,” Randhawa continues.

Daniyal Ahmad
Daniyal Ahmad
The author is a member of the staff, and covers the automobile, energy and advertising insdusties as a sector analyst. He can be reached at [email protected]

25 COMMENTS

  1. I wonder if this measure will affect the business class tickets that have already been purchased and paid for?
    How will this FED be collected? Will this be charged by the airlines and travel agents when issuing tickets or will this be collected at the airport?

    • Were you able to find the answer to this question. It doesnt make sense to levy tax on tickets purchased prior to this rule being made .

  2. The travellers who travel on government exchequre will escape the liability again and only those will be liable to pay who are paying from their own resources

  3. Most unsafe and lawless place start robing there own public shameful that’s the achievement we have in 75years London to pakistan one way ticket 98000 and same date pakistan to London 365000 economy class

  4. The return economy ticket from London Islamabad London is£ 613 today by Qatar airline that is equivalent to PKR Rs. 192000 approx, the cheapest one dated 25/2/23

  5. Being frequent flyer, I remember everything was stabilized in 2017/18 or getting even cheaper due to fast growing economy. And bang….then came the incompetent Mr Selected who not only destroyed economy but also all its basic indicators. Now we’ve run out of all resources and the current duo taxing like hell. These firefighting measures wouldn’t save the economy no matter how much they tax. We’re a small country (fiscal wise) and there isn’t any room to tax the masses. Even god can’t save this disastrous fall now.

    • Please awake up,if people of Pakistan want to succeed, they have to move away from ‘my party’ idealogy. put Pakistan first.,as u blame Khan, what about other 73 years.Basic truth is every institution and majority of population, have been robbing Pakistan. corruption at every level, agriculture, manufacturing, mafia in every aspect of life.Lack of good quality education for the masses. Mindset of begging year in year out.Stealing electricity, no rule of law, you can safely say destruction of our Pakistan is collective effort; internally. Enemies of Pakistan, they didn’t have to spend a bullet. So called saviours of Pakistan, we can do without.

  6. What a brilliant move to collect more tax revenue.
    Uncertain how this will affect public servants & politicians traveling on taxpayers expense.
    What is to prevent me from flying to the Gulf and then purchasing another ticket to avoid this ‘smart’ tax? Doesn’t that bring a loss of revenue more than the ‘tax’?
    God bless the Pakistani Elite.

  7. I had a ticket issued on 17th Feb, and then changed my flight (Khi-Doh to ISB-Doh). The agent in the Uk confirmed and reissued on the 23rd. When I arrived in ISB yesterday I was told I needed to pay an additional 1 lac as the ‘RG tax’, as my ticket only had 50k for this allocated, which no one informed me of. Anyway, I was forced to pay or not travel, the Qatar supervisor was useless and couldnt show me the law or memo citing this new tax- being a foreigner I had no idea and how can i prove this payment to my employer .. joys of Pakistan.

    • Very same case with me, I suggest that airlines have copies of the official communicate to give to those who are stung by this exit tax. It’s very hard for an employer to accept that their staff had to pay the most expensive Departure Country Tax on earth, interestingly, from Pakistan….

  8. Whoever has already bought the ticket will have to pay the cash amount at airport, so be prepared!

  9. I was just stung by this nonsense exit tax. So, if someone is brave enough to come to Pakistan with business purposes and happens to travel in business class, needs to be prepared to pay for leaving the very country one has come to help develop. Totally ridiculous and frustrating.

  10. 2 return tickets to Australia from Pakistan cost PKR 804000 in Emirates (Economy). Swiped the card to see that Rs. 885700 was taken. Logged in my online banking to see that PKR 77000 was taken by FBR for FED. That is not taxation, its Robbery!

  11. Different situations happen while traveling, but I have never encountered any unpleasant ones. I often organize my own travels and take it very responsibly. For me, the most important thing is to have a good accommodation and a car during my vacation. This time, I was vacationing in the Mexican city of Monterrey alone, but I had a good time there, rented a car, and traveled a lot around the neighborhood

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