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State grants reprieve to grounded airline

After three months of empty skies, Slovakia may soon again have a domestic air carrier operating on its territory if Tatra Air fulfills the terms of a recent bargain struck with the Finance Ministry.
Following a May 13 meeting between the two parties, the Finance Ministry offered to waive one of Tatra Air's two debts to the state - 21 million Slovak crowns in unpaid import duties dating back to 1992. Tatra Air must now pay off its remaining debt and submit a business plan to ministry officials for approval.
According to the Finance Ministry, Tatra Air now owes the state 66.7 million crowns in unpaid Value Added Tax (VAT) accrued since 1992 on two Saab 340 aircraft imported by the airline that year.

After three months of empty skies, Slovakia may soon again have a domestic air carrier operating on its territory if Tatra Air fulfills the terms of a recent bargain struck with the Finance Ministry.

Following a May 13 meeting between the two parties, the Finance Ministry offered to waive one of Tatra Air's two debts to the state - 21 million Slovak crowns in unpaid import duties dating back to 1992. Tatra Air must now pay off its remaining debt and submit a business plan to ministry officials for approval.

According to the Finance Ministry, Tatra Air now owes the state 66.7 million crowns in unpaid Value Added Tax (VAT) accrued since 1992 on two Saab 340 aircraft imported by the airline that year.

While grateful for the debt waiver, however, Tatra Air President Jean Charles Bemberg criticised the Finance Ministry for taking so long to resolve the three-month-old dispute, which began in February when the ministry grounded the airline by freezing its accounts and demanding repayment of the full 88 million crown debt.

Bemberg also slammed the lack of clarity in the waiver procedure, saying he had no idea whether the 15 million crowns the ministry had already taken from Tatra Air accounts against the debt would now be repaid.

"This is totally, totally crazy!" Bemberg told The Slovak Spectator on May 14. "First, they [the Customs Office] froze 15 million Sk on our accounts and now what? Are they going to give us the money back?".

According to Bemberg, the company effectively paid the majority of the first debt - the waived import duty - when the Customs Office froze Tatra Air's accounts from November 1998 till February 1999 and withdrew 15.6 million Sk ($355,000) in operating revenues to pay the duty.

Bemberg said that the ministry waiver looked more generous than it really was. "It's just an act of advertising for the [Finance] Ministry," he said. "Really, we have the impression that we've been taken for a milk cow!"

Carrot and stick

Finance Minister Brigita Schmögnerová said that the ministry's willingness to forgive Tatra Air its import duty depended on Tatra Air's readiness to meet the ministry's conditions.

"[The waiver] is conditional on Tatra Air submitting a financial report and a business plan for the next few years," Schmögnerová said, adding that the ministry particularly wanted to see Tatra Air's planned schedule of installments for paying off the 66.7 million crown VAT levy.

"If this condition is not met, then the waiver won't be granted to the company either," Schmögnerová said.

Schmögnerová agreed that it was in the state's interest to have Tatra Air back in operation. Slovakia has not had a domestic airline carrier conducting regular flights since Tatra Air and former national carrier Slovenské Aerolínie were grounded by the government due to operating and financial irregularities earlier this year.

Tatra Air's Sales and Operations Director, Karol Němec, explained that both the import duty waiver and the payment schedule for the VAT debt were now being negotiated with the Customs Office and the Finance Ministry. He said that his company was preparing a schedule for payments of the VAT, but that Tatra Air would need additional 57 million crowns ($1.2 million) to settle all financial claims and begin operations again.

Němec blamed Tatra Air's tax woes on bizarre Slovak legislation, arguing that few countries in the world levied import duties and VAT on aircraft. Němec said the international General Arrangement on Tariffs and Trade (GATT), to which most countries were signatories, espoused an international convention allowing for duty-free import of aircraft and equipment.

"We [Slovak airline carriers] are in an unbelievable situation which is economically unbearable for airlines," said Němec.

He explained that while most western European countries charged no duty on imported aircraft, the Czech Republic applied a duty of 1.2% of the plane's value, while Slovakia charged a hefty duty of up to 5.4%. Moreover, he added, a 23% VAT charge is levied in Slovakia even on leased aircraft, another anomaly of the Slovak aviation system.

"If these duties are not eliminated, Slovakia will have no air traffic at all," said Němec.

Transport Minister Gabriel Palacka said on May 13 that Slovakia should ratify the GATT treaty by the end of this year, so that it can come into effect as of January 2000. Once a member of GATT, he said, Slovakia would be forced to eliminate its duties on aircraft. However, government officials say this does not mean that Tatra Air will be forgiven debt piled up in the past.

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