Airlines to save N5 billion yearly from VAT removal

  • It will lead to fare reduction, stability, profit margin for carriers-Aero MD

Aside heaving a sigh of relief over last week’s removal of Value Added Taxes (VAT) on air travel, domestic airlines in Nigeria are expected to save over N5 billion annually.

Figures made available by the Nigerian Civil Aviation Authority (NCAA) indicate that domestic carriers raked in N93, 605, 725, 508.60 tickets in 2017.  Local carriers transported no fewer than 10,135, 009 passengers in 2017.

 At an average of N25, 000 per ticket, five per cent VAT was in excess of N5 billion.

Described as a lifeline to sustaining their operations which has a very low life span of between 10 and 15 years, operators told New Telegraph that it is indeed a welcome development following over 20 years agitation by Airline Operators of Nigeria (AON), umbrella for all operators in the country.

President Muhammadu Buhari had on June 6, 2018 signed Executive Order for the removal of VAT from “All Forms of Shared Transportation.”

The decision taken at the Federal Executive Council meeting, experts said presents a veritable opportunity for the aviation industry to immediately take advantage of the decision to expedite a White Paper to that effect.

VAT on commercial air transportation is a huge departure from what obtains worldwide and an increased burden on the Nigerian travellers.

 Ghana, Benin Republic, Togo and Cote d’Ivoire located next door to us have all abolished VAT for air transportation.

 Road, rail, marine and even foreign airlines operating in Nigeria don’t pay VAT in their home country or in Nigeria with reference to an information circular by the Federal Inland Revenue Service (FIRS) which grants them VAT exemption (Information No.: 9701; Circular Dated Jan. 1, 1997); Part L (b) No. 8.

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Managing Director of Aero Contractors, Capt. Ado Sanusi told Woleshadarenews that government’s decision to remove VAT on transportation including air travel would lead to fare reduction or at best stability in fares, adding that on no reason should fares be increased because of the huge amount of money airlines would be saving which he said runs into billions of naira.

He stated that although prices hardly come down in Nigeria whenever there is reduction in what made it expensive in the first place, but assured that if fares are not going to be reduced, there would be, ‘stability in price of tickets’ and more profit margin to carriers.

He said, “It would be difficult for me to exactly tell you what the airlines will be saving. It is huge not only for airlines but also for passengers. It will certainly bring ticket prices down or at best make it stable. It will lead to more profit margin for airlines. VAT makes tickets expensive”.

VAT is an age-long tradition in aviation in Nigeria. Airlines remit five per cent of their base fares to the government through Federal Inland Revenue Service (FIRS); a situation they said has stifled their growth and expansion.

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Nigeria is said to be the only country where VAT is paid on air travel. Other nations had stopped it because of the huge costs it adds to air travel.

A base fare is the price of airline ticket before fees, taxes, and any surcharges are added. In most cases, a business traveller’s base fare will be lower than the final ticket price.

Some fares, such as ones to international destinations, may increase significantly from the base fare when additional taxes are added.

A ticket from one of the domestic airlines to Abuja from Lagos (Name withheld) shows a total of N26, 000.

The base fare which actually goes to the airline is N11, 000. Fuel surcharge is N12, 000; five per cent Ticket Sales Charge (TSC) which is remitted to the Nigerian Civil Aviation Authority (NCAA) and shared among various aviation agencies like the NCAA, Accident Investigation Bureau (AIB), Nigerian Airspace Management Agency (NAMA), Nigerian College of Aviation Technology (NCAT) and the Nigerian Meteorological Agency (NIMET). Other addition to the total fare is another N1, 000 charged each passenger travelling within the country. This amount goes to the FAAN.

It is from the base fare of N11, 000 that goes to the airline that they pay five per cent VAT to the FIRS.

Managing Director of Skypower Express, Capt Mohammed Joji claimed that VAT Decree 102 of 1993, schedule three, under “Goods Except” actually exempted transportation by road, rail and water from VAT deductions.

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“Erroneously, they (government of the day) left air transportation on the VAT list. When we demanded to know the reason, they said because aviation was high- profile, unlike other sub-sectors. But that is a bad argument. They don’t know that aviation is a catalyst for the economy. That is what we have been telling them all these years,” Joji said.

President, AON, Capt. Noggie Meggison commended President Buhari for the bold step he took to save the country’s aviation industry at a time many governments before him found it difficult to do the needful.

His words, “We as Nigerians have been crying out for decades now for discussions on the immediate removal of VAT from domestic air transportation in line with global best practice, but we have barely been heard over the years. VAT is an added burden on our passengers who have limited disposal funds and have reached their elastic point in this difficult time in the nation’s economy”.

 “This adversely affects the sector by reducing the number of those who can afford to travel by air due to high fares in this tough economic time. Domestic air transportation in Nigeria is the only mode of commercial transportation that pays VAT.”

Wole Shadare