FG Insists Airlines Must Pay VAT, Says No Going Back on New Tax Reforms Act

Abuja, Nigeria – The Federal Government has firmly stated that there will be no exemptions for airlines regarding the payment of Value Added Tax (VAT) on ticket sales and other services, as mandated by the newly enacted Tax Reforms Act. This declaration puts an end to speculation that the aviation sector might receive a reprieve from the tax burden.

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, made the government's position clear during a stakeholder meeting with airline operators and representatives from the aviation sector. The meeting, which was convened to address growing concerns over the impact of multiple taxes on the industry, ended with a firm stance from the government.

The controversy stems from the implementation of the 2023 Finance Act and subsequent guidelines from the Tax Reform Committee, which explicitly classify airline tickets as taxable supplies for VAT purposes. This means a 7.5% VAT is applied to the cost of domestic air travel.

Airline operators, under the umbrella of the Airline Operators of Nigeria (AON), have vehemently opposed this move. High Operational Costs is the aviation industry is already plagued by extremely high operational costs, including jet fuel, maintenance, and numerous existing government charges. Passenger Burden is that  VAT will inevitably be passed on to the flying public, making the already expensive domestic air travel even more unaffordable for many Nigerians. Competitive Disadvantage, while international airline tickets are zero-rated for VAT (as the destination country collects its own taxes), domestic airlines are put at a further disadvantage.

In response, the Federal Government, through Mr. Oyedele, presented a multi-faceted argument that the Broadening the Tax Base is a key objective of the new tax reforms is to widen the tax net to include sectors that have historically enjoyed exemptions. The government believes the aviation sector, which serves a predominantly middle-to-upper-class demographic, should contribute its fair share to the nation's revenue. Clarity and Uniformity is the government insists the law is clear and must be applied uniformly across all sectors to avoid creating loopholes and preferential treatment for specific industries.  Revenue for Development is the collected revenue is earmarked for critical national infrastructure and development projects, which ultimately benefit all sectors, including aviation (e.g., airport upgrades, navigational aids, and security).

We understand the concerns of the airline operators, stated Mr. Oyedele. However, the law is the law. Our mandate is to create a simpler, equitable, and efficient tax system. Granting exemptions to one sector opens the door for others to demand the same, which defeats the purpose of a broad-based tax reform. The focus should be on reducing the overall cost of operations in the sector through other means, not by violating the VAT Act.

The AON has expressed deep disappointment with the government's stance. They warn that the additional tax will lead to a further decline in passenger traffic, which could push some struggling airlines into insolvency.

We are being taxed out of existence, said a representative of a major domestic carrier who wished to remain anonymous. The government speaks of ease of doing business, but this move does the exact opposite. We will have no choice but to fully comply, but the cost will be borne by the Nigerian traveler.

Despite the opposition, the Federal Inland Revenue Service (FIRS) is expected to commence strict enforcement, ensuring all domestic airlines remit the 7.5% VAT on their ticket sales.

The government has, however, pledged to continue dialogue with the sector to address other structural issues, such as the high cost of aviation fuel (Jet A1) and airport levies, in a bid to improve the overall health of the industry without compromising on tax compliance.