New Tax Reform Act Puts Nigerian Aviation Sector at Risk, Operators Warns

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Nigeria’s airline operators and aviation stakeholders are sounding the alarm over the new Tax Reform Act, warning that its full implementation could have a devastating impact on the country’s already struggling aviation sector.

While not completely rejecting the law, industry experts, on July 30, demanded a thorough review by tax and economic professionals. They want to identify areas where waivers can be granted to prevent the “fragile industry” from collapsing entirely.

As reported by Punch.ng, the primary concern is the reintroduction of the Value Added Tax (VAT) on airline tickets. Operators are also worried about the removal of customs duty exemptions on imported aircraft and spare parts, a concession that was previously in place to support the industry.

The airline operators argue that these changes go against global best practices, explicitly citing the International Civil Aviation Organisation (ICAO) standards, which advise against VAT on air transport services.

Ado Sanusi, a pilot and the managing director of Aero Contractors, highlighted that the aviation sector is already burdened with numerous taxes and levies. He stressed that the new tax reform would only make the situation worse, potentially leading to widespread job losses and social instability.

Sanusi noted that, “Yes, the government will earn more revenue by taxing airlines; considering aircraft can cost $30m to $40m, even a 10 per cent duty is significant.

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“But if this law is implemented as it stands, thousands, if not millions, of jobs will be lost. Businesses will fold, and social tensions will rise. The government may fill its coffers, but it will also face serious security challenges.”

The airline operator emphasised that nearly every component of aircraft operations, including parts and interiors, is imported, meaning the cost burden on operators would spike due to the dictates of the new tax regime.

He further criticised the impact on aviation regulatory agencies, particularly the management of internally generated revenue.

According to the new policy, agencies like the Nigerian Civil Aviation Authority and the Nigerian Airspace Management Agency would have to remit all IGRs to the Consolidated Revenue Fund before funds are disbursed to them. This, Sanusi argued, “goes against ICAO’s cost-recovery principle.”

“Additionally, already, the government is deducting 50 per cent of these agencies’ IGRs through the Treasury Single Account. If these bodies, especially NCAA and NAMA, are expected to operate on cost-recovery principles and are left with only half their revenue, they won’t survive,“ he added.

He said that while turning commercial agencies like the Federal Airports Authority of Nigeria into profit-making entities might make sense, the same cannot be applied to regulatory or safety-focused bodies.

Sanusi, however, urged the government to take a balanced approach that supports revenue generation without crippling the aviation industry or escalating national unemployment.

A few other operators who spoke with our correspondent also expressed their concerns but spoke on the condition of anonymity, saying their association, Airline Operators of Nigeria, would respond to the tax reform in due time.

Industry expert Chris Aligbe enjoined the operators to, as a group, express their reservations to the government before the new law starts operation.

He added that just as he wouldn’t back any move or law that is capable of negatively affecting airlines’ operations, he asked operators to prepare for challenges that they could face in their businesses.

“Yes, I think as a group they should approach the government even before the policy comes into existence. It is better to go to them before the commencement because if they have to start tweaking after the policy has been enforced, it may lead to the policy eventually having a harmful impact.

“Whatever is in it that is against international convention and practice, I know the government will sort that out, I am sure. But also, on the ground that it will affect them, this is just one of the hazards in business, and I think that before they get into the business, they should know. What it entails and how to prepare for it. For the complaint they have raised, they should quickly, as a group, meet the government on the matter.” Aligbe stated.

Another expert, Muhammad Badamosi, said the government may be considering raising taxes on airlines because of some alleged unexplained charges stated in flight tickets.

Summing up his last trip from Lagos to Abuja, Badamosi asserted that the airlines may be double-charging passengers, explaining, “Here is the cost of my ticket for a flight from Lagos to Abuja: Ticket cost N31K +, tax N12K +, surcharge N60K +, SMS service N320, transaction N350, special OTH N320, insurance N3000, total N107,490.”

By the breakdown, Badamosi questioned the purpose of the surcharge after taking tax from passengers.

He added, “My point is that the government could have picked a hole in these charges, especially the surcharge. What’s the meaning of surcharge?”

 

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Frequently Asked Questions (FAQs) and Answers

What is the primary concern of Nigerian airline operators regarding the new Tax Reform Act?

The primary concern is the reintroduction of Value Added Tax (VAT) on airline tickets and the removal of customs duty exemptions on imported aircraft and spare parts.

Why are these changes seen as a problem for the aviation industry?

The industry believes these measures will increase operational costs, which could lead to higher ticket prices for consumers and make it more difficult and expensive to maintain aircraft. This could threaten the viability of airlines, leading to job losses.

Does the new law reject the tax reform entirely?

No, the industry is not outrightly rejecting the reform. Instead, they are calling for a careful review of the law to identify areas where waivers can be granted to protect the “fragile industry.”

What global standard is being cited by the operators?

Airline operators are citing International Civil Aviation Organisation (ICAO) standards, which discourage the application of VAT on air transport services as a global best practice.

Who is Ado Sanusi, and what is his role in this discussion?

Ado Sanusi is a pilot and the managing director of Aero Contractors. He has spoken out against the new tax reform, stating that the sector is already struggling with multiple taxes and that the new law will only worsen the situation.

What are the potential consequences if the Tax Reform Act is fully implemented as is?

According to industry stakeholders, the full implementation of the law without waivers could lead to the collapse of the aviation sector, mass unemployment, and increased social instability in Nigeria.