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Understanding Nigeria’s New Tax Reforms: A Boost for the Aviation Industry
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has clarified that Nigeria’s upcoming tax legislation aims to support the aviation sector by lowering operational expenses rather than increasing the cost of air travel. This statement comes in response to concerns raised by Allen Onyema, CEO of Air Peace, who cautioned that the Nigeria Tax Act and related fiscal adjustments, set to take effect in January 2026, might reintroduce a 7.5% VAT on aircraft imports, engines, and spare parts-taxes that were suspended during the COVID-19 pandemic. Onyema warned this could lead to significant hikes in ticket prices.
Addressing Industry Challenges: Collaborative Tax Solutions
Oyedele emphasized that the committee is fully aware of the financial pressures airlines endure, including numerous taxes, levies, and regulatory fees. Through extensive consultations with airline operators, the committee is actively tackling key tax-related issues that inflate costs. He stressed that attributing long-standing industry challenges solely to the new tax laws is misleading. Instead, these reforms are structured to alleviate tax burdens and streamline fiscal impacts on airline operations.
Key Tax Reliefs and Improvements for Airlines
1. Eliminating Withholding Tax on Aircraft Leasing
One significant tax obstacle for airlines has been the 10% withholding tax on aircraft leases. Under the previous system, leasing a $50 million aircraft could result in a non-recoverable $5 million tax, severely straining cash flow. The new regulations remove this fixed rate, allowing for a flexible rate set by future guidelines, potentially enabling full exemption or a substantially reduced tax burden. This change represents a major financial reprieve for airlines.
2. VAT Adjustments Enhancing Cash Flow Management
While the VAT suspension during the pandemic initially provided relief, it inadvertently created hidden costs by preventing airlines from reclaiming VAT on essential inputs like consumables, overheads, and assets. The updated tax framework introduces VAT neutrality, allowing airlines to recover VAT paid on both imported and domestic goods and services. Additionally, if input VAT exceeds output VAT, airlines can expect refunds within 30 days, supported by a dedicated tax refund fund and the option to offset credits against other tax liabilities.
3. Continuation of Import Duty Exemptions
Contrary to some concerns, exemptions on import duties for commercial aircraft, engines, and spare parts remain intact under the new tax laws. No new import duty charges will be imposed on these critical aviation components, ensuring continued cost stability in this area.
Evaluating the Impact on Airfare Prices
Oyedele highlighted that the airline industry operates on thin profit margins, and while a 7.5% VAT on tickets might sound significant, its actual effect on ticket prices is modest, especially within a system where input VAT is fully recoverable. Even in a worst-case scenario where VAT recovery is impossible, the maximum increase in ticket prices would be limited to 7.5%. For example, a ₦125,000 ticket would rise to approximately ₦134,375, and a ₦350,000 ticket would increase to about ₦376,250-far less than the dramatic surges some have predicted.
Corporate Tax Reductions and Levy Consolidation
The new tax legislation also introduces a framework to lower corporate income tax rates from 30% to 25%, which is expected to benefit airlines by reducing their overall tax burden. Furthermore, multiple profit-based levies-including the Tertiary Education Tax, NASENI, NITDA, and police-related charges-have been consolidated into a single development levy. This harmonization simplifies the tax landscape, reduces administrative complexity, and provides greater predictability for businesses.
Clarifying Misconceptions About Multiple Levies
While acknowledging the existence of various levies and charges affecting airlines, Oyedele pointed out that these are not a product of the new tax laws. He urged stakeholders to avoid attributing these longstanding costs to recent reforms. The government is actively collaborating with industry players and regulatory bodies to devise sustainable solutions. The harmonization measures embedded in the new tax framework are expected to improve the fiscal environment for airlines starting in 2026, rather than exacerbate existing challenges.
