Local Airlines To Save N80bn Yearly From Tax Exemption

The plan by the Federal Government to fully implement the zero duty and Value Added Tax (VAT) payment on the importation of commercial airplanes and spare parts could save airlines in the country over N80 billion annually, woleshadare.net has learnt.

There are indications that the amount could be more considering the huge number of aircraft ferried outside the country for maintenance and the acquisition of relatively newer aircraft by the airlines. Arik, Medview, Overland and Dana plan to acquire more airplanes for the expansion of their operations.

Local Airlines

The government’s gesture was extended specifically to commercial aircraft operators and not private jet operators who are required to pay for luxury taxes.

The clarification on the Zero Duty and VAT was contained in a letter dated June 20, 2016 and signed by the Nigeria Customs Service.

It stated: “I am directed to inform you that by virtue of the Federal Government 2013 Fiscal Policy measures, Ref No. BD.12237/S.1008/T/11 dated January 15, 2013, all commercial aircraft and its spare parts imported for use in Nigeria shall attract import duty rate of zero per cent (0 per cent) and zero per cent (0 per cent) VAT respectively.” It would be recalled that the Federal Government had, aftermath of Dana Air crash four years ago, introduced zero duty policy on aircraft and spare parts.

The policy was not fully implemented as a former minister of aviation then (name withheld), allegedly favoured selected airlines close to the Ministry of Aviation. The action of the ex-minister also saw to the influx of private jet owners who took advantage of the policy to purchase jets without payment of duty.

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But that is over now are as the exemption is only for commercial jet owners. In Nigeria, the Boeing aircraft is the dominant as virtually all carriers operate the aircraft type.

The most popular are B737-400, B737-500. These are regarded as classics and are in the fleet of Aero, Medview, Air Peace, Azman Air and Dana, while the NextGen Boeing aircraft such as the B737-700, B737-800 and B737-900 are operated by Medview and Arik Air.

The cost price for the 1998 Boeing 737-500 goes for $3.8 million; 1992 made, B757-500 costs $3.6 million; B737-700 costs $74.80 million; B737- 800 – $89.10 million; B737-900ER costs $94.60 million and these are in the fleet of Arik Air and Medview.

Other aircraft that have been acquired in recent times are Q400, which going price is $31.3 million – that is in the fleet of Arik and Aero Contractors; CRJ700 ($41million); CRJ 900 ($46 million) and the CRJ100 ($49 million) all in the fleet of Arik Air.

Equally acquired is Airbus type of aircraft. First Nation Airways is the only airline operating this brand of airplane and the cost range from between $25 million and $40 million, while the Embraer and ATR airplanes, which go for $5 million and $10 million are operated by Overland and Aero.

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A former Assistant Secretary General of Airline Operators of Nigeria (AON), Mohammed Tukur, welcomed the idea of full implementation of the policy, noting that it was Ininitially partially implemented.

He noted that usually when airlines bring in their airplanes, they usually pay 10 per cent of the value of the equipment to Nigeria Customs and another five per cent as Value Added Tax (VAT), describing it as killing for airlines.

Even for maintenance of aircraft and acquisition of spare parts like engines, which costs between $500,000 and $1 million depending on the size of the engine, the carriers are requested to pay 10 per cent of the value and another five per cent as VAT.

This newspaper had exclusively reported that Nigerian airlines could spend over N560 billion for the maintenance cost of over 350 aircraft that are expected to go for both ‘C and D checks.

The country and airline operators would continue to lose several billions of naira to ferry their airplanes abroad for maintenance checks. Lack of functional maintenance hangar and customs duty have done incalculable damage to the operation of airlines in the country, leading to carriers closing shops less than ten years of operations.

In 2013, Nigerian airlines spent over $1.22 billion (N200 billion) when the exchange rate was at N200 to $1 on overseas checks due to lack of any major maintenance facility, according to statistics given by the former Director General of the Nigerian Civil Aviation Authority (NCAA), Dr. Harold Olusegun Demuren.

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Aviation security consultant, Group Capt. John Ojikutu (rtd), said: “No one would have problems with government giving a life support to the ailing Nigerian aviation industry, but every discerning mind should question the rationale behind the continuous provision of same prescriptions in financial model for same ailment without sufficiently diagnosing the ailment.”

He noted that the financial prescriptions have come in various forms and names. “If it was not intervention fund as it was for government operators during Obasanjo/Fani-kayode era and Jonathan/Oduah era, it would be debt concession as it was in Yaradua/Njeize era.”

He listed the problems of the industry generally as “poor management structure, lack of adequate skilled manpower, inefficient supervision from field managers and ineffective professionally inclined inspectors to enforce compliance to regulations.”

On the part of the Nigerian airlines, the problem has always been that of single ownership resulting always to uncontrolled diversion or divestment of funds, especially the generated earnings, from sales including government intervention funds, to private uses and other businesses.

Wole Shadare