ISLAMABAD: The Competition Commission of Pakistan (CCP) has recommended a predictable, transparent, and internationally aligned aviation tax regime to better support Pakistan’s connectivity goals, tourism development, and hub ambitions while safeguarding fiscal sustainability.
This has been recommended in the CCP’s first of its kind of report, Competition in the Skies: Pakistan’s Civil Aviation Market Assessment.
The report said when analysing tax rates in the context of civil aviation, particularly comparing Pakistan with the Gulf Cooperation Council (GCC) countries, the primary difference lies in fundamental tax regimes.
Pakistan levies a standard corporate income tax of 29 percent on companies (excluding banks), along with a general sales tax/ value-added tax (GST/ VAT) rate of 18 percent on goods and various rates on services, which are among the highest in the region. These high rates significantly increase the operational overhead and tax burden for domestic airlines and supporting services.
In stark contrast, GCC nations like the United Arab Emirates (UAE), Qatar, Oman, and Kuwait have historically implemented highly favourable, often zero, corporate and sales tax environments (with VAT typically at a low (5percent) in implementing states like UAE and Oman, and still zero in Qatar and Kuwait for general supplies). This disparity creates a substantial competitive disadvantage for Pakistani aviation entities: while airlines in the GCC operate within a minimal tax framework that fosters efficiency and large-scale investment, Pakistani carriers face a heavy tax structure that reduces profitability, increases operational costs, and hinders the ability to compete effectively on international routes or attract long-term financing for fleet modernisation or infrastructure development.
To offset increased costs, airlines often raise ticket prices. While demand might initially remain strong, sustained high fares can eventually choke consumer demand and reduce passenger traffic.
The recent International Air Transport Association (IATA) report on public finance and air transport suggests that taxation policy for air transport should be anchored in neutrality, international coordination, and efficiency to avoid distortions that undermine connectivity and growth.
Since air transport is a low-margin industry with net profit margins below 5 percent (3.9 percent projected in 2026), excessive or fragmented taxation, particularly source-based profit taxation or expansion of consumption taxes on international tickets can disproportionately harm airline viability and passenger demand, CCP maintained.
The report emphasised that international passenger transport is typically zero-rated or exempt from VAT in line with International Civil Aviation Organisation (ICAO) to avoid administrative complexity and double taxation public-finance-and-air-transport, and warns that departures from harmonized rules introduce inefficiencies that ripple across the global network public-finance-and-air-transport.
According to IATA, narrowly targeted consumption levies, such as air ticket taxes, are among the most economically inefficient forms of taxation because they tend to significantly suppress the specific activity being taxed while generating relatively limited public revenue.
Unlike broad-based consumption taxes, these charges concentrate the burden on a single sector, thereby distorting demand and weakening connectivity without making a substantial contribution to overall fiscal resources.
While such taxes can be justified where the explicit policy objective is to discourage consumption, similar to excise duties imposed on tobacco or alcohol, their rationale in aviation must be clearly articulated.
IATA argues that if governments choose to impose specific ticket taxes, they should transparently acknowledge whether the underlying intent is revenue generation or an explicit effort to curb air travel demand.
For Pakistan, this implies that policies such as high airport departure taxes, turnover-style levies, or unilateral shifts toward source-based taxation of airline profits should be carefully reassessed against principles of neutrality and international competitiveness, especially given that corporate income taxes already reduce investment and output while contributing a relatively modest share of total tax revenue in OECD systems (12-13 percent), CCP added.
Copyright Business Recorder, 2026