The tax exemption granted the local airlines last week by the Federal Government, may cost the country about N11.6 billion in tax revenue, according to the latest disclosure by industry analysts.
President Muhammadu Buhari last week, issued an Executive Order for the removal of Value Added Tax (VAT) from “All forms of shared transportation”, including air travel. Prior to this decision, it was reported that domestic air transport was the only mode of commercial transportation that paid VAT, with road, rail, marine, and foreign airlines exempted from the levy.
According to analysts with Cordros Capital, an investment and stockbrokerage firm, in their Weekly Economic and Market Report, though the exercise “is likely to spur demand for domestic air travel and enable domestic airlines compete favourably with their African counterparts, but an estimated N11.55 billion is to be lost in tax revenue to the government”.
Recall that domestic airline owners had halted further payments of VAT from their services to the Federal Government as from June 14 ( 2018) as part of measures to compel the government to abolish all existing dichotomy in tax regimes between foreign and local airlines operating in the country.
Reacting to the development, the Chairman of the Airline Operators of Nigeria (AON), Capt Nogie Meggison, told journalists that the news of the VAT abolition was received with a lot of excitement by local airline owners.
“The AON would like to thank President Muhammed Buhari and his administration for coming to the aid of domestic airlines by therecent Executive Order to remove VAT from all forms of Shared Transportation,” Meggison said.
“We 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.
“It is our prayer that the President will go a step further to encourage the National Assembly to pass this Executive Order into law as quickly as possible,” Meggison added.
He explained that VAT on commercial air transportation is a huge departure from what obtains worldwide and an increased burden to the local travellers.
“Ghana, Benin Republic, Togo and Cote d’Ivoire located next door to us have all abolished VAT for air transportation,” Meggison said.
“The recent decision to remove VAT from domestic air transportation will go a long way to bring succour to groaning Nigerian travellers to be able to afford to travel by air and the growth in demand for domestic air travel will lead to the creation of jobs by the whole air transport service chain (airlines, airports, ground handlers and catering companies) as well as increase revenues for government.
“This is a step that Ghana took over a year ago and the benefits are there for all to see today as Accra is fast becoming the Aviation Hub for West Africa.
“There has been this adverse affects of VAT in the sector as it kept reducing the number of those who can afford to travel by air due to high fares charged by airlines in this tough economic time. Airlines pass the tax to passengers.
“This has been shown to be true according to a recent report from the Federal Airports Authority of Nigeria (FAAN) that passenger traffic dropped by 27 per cent in 2017 and by another seven per cent in the first quarter of 2018 making it a total of 34 per cent drop in passenger traffic within a span of one year.”