Tax Reforms To Cut Airlines Operating Costs, Not Raise Fares – Oyedele

The Presidential Fiscal Policy and Tax Reforms Committee has said the newly enacted tax laws will provide a stronger legal and policy framework to address long-standing tax challenges confronting Nigeria’s aviation sector.

The Committee headed by Mr Taiwo Oyedele, in a statement  titled “The New Tax Laws Will Help, Not Hurt Airlines,”  explained that the reforms are designed to reduce airlines’ operating costs and ensure minimal impact on passengers.

LEADERSHIP reports that the Chairman of Air Peace, Allen Onyema, had on Tuesday warned that Nigeria’s domestic aviation industry could face a looming crisis, arguing that newly introduced tax laws may push airfares beyond N1 million and potentially force some airlines out of business.

However, responding to the allegation, the Tax Reform Committee clarified that the new tax regime had abolished the 10 per cent withholding tax (WHT) on aircraft leasing. It further stressed that the multiplicity of taxes and charges borne by local airlines was not created by the new tax laws.

According to the Committee, the reforms make airlines fully VAT-neutral, as any Value Added Tax paid on imported or locally procured assets, consumables, and services will now be fully claimable, thereby easing cost pressures on operators.

“Contrary to the claim that the new tax laws will hurt the industry, the reform is part of the solution, not the source of the problem. Several long-standing tax issues driving costs in the sector have been resolved in the new tax laws or are being structurally addressed.

“The single biggest tax burden on airlines has been the 10 per cent withholding tax (WHT) on aircraft leases under the existing law. This has now been removed and replaced with a rate to be determined in a regulation, creating the legal basis for either a full exemption or a significantly lower rate.

“To put this in context, on a $50 million aircraft lease, an airline currently pays $5 million in WHT, which is non-recoverable and therefore directly increases operating costs and strains cash flow. Eliminating this burden is a major structural relief for the sector.”

“While the temporary VAT suspension introduced in 2020 following COVID-19 was attractive, it came with a hidden cost. Airlines could not recover input VAT on non-exempt items including certain assets, consumables, and overheads, meaning VAT became embedded in costs.

“Under the new tax laws, airlines become fully VAT-neutral. Any VAT paid on imported or locally procured assets, consumables, and services will become fully claimable. Where an airline has excess input VAT, the law mandates a refund within 30 days, supported by a fully funded tax refund account and the option to offset VAT credits against other tax liabilities. This directly reduces cost pressure and improves liquidity.”

The Committee, however, explained that existing exemptions of import duties on commercial aircraft, engines and spare parts remained.

“Existing exemptions on commercial aircraft, engines, and spare parts remain fully in place. There is no reversal or new burden introduced under the tax reforms. Airline operations are inherently low-margin. A 7.5 per cent VAT on tickets, within a system where input VAT is fully recoverable, results in a significantly lower net impact than the headline rate suggests. Even in a worst-case scenario where VAT were not claimable, the maximum impact would still be 7.5 per cent, not the price increases being suggested.

“The new law provides a framework to reduce corporate income tax from 30 per cent to 25 per cent, which will benefit airlines. In addition, several earmarked profit-based levies, including Tertiary Education Tax, NASENI, NITDA and Police levies, have been harmonised into a single Development levy, reducing complexity and ensuring certainty.”

“The multiplicity of levies imposed on airlines and flight tickets is real, but these charges are not created by the new tax laws. It is therefore incorrect to attribute them to the reform. The government is actively working with operators and relevant agencies to achieve a lasting solution. Importantly, the tax harmonisation provisions in the new laws mean the situation can only improve, not worsen, from 2026.”

“If the current engagement with industry stakeholders is sustained, the remaining non-tax issues will be resolved sooner rather than later. Claims not grounded in fact do not help this process. The new tax laws are not the problem, they are a critical part of the solution.”