Airlines to Deploy N50bn VAT Waiver to Lower Air Fares, Maintenance, Employment


By Chinedu Eze

Domestic airlines has said the recent Value Added Tax (VAT) waiver given to them by the federal government estimated to be about N50 billion annually would give them relief financially, provide them with fund for lower air fares, aircraft maintenance, and to create more employment in the sector.

The airlines said increased passenger movement in the domestic routes would boost the financial contribution of the sector to the GDP, increase revenue for the aviation agencies and enhance aircraft acquisition.

Recently, the federal government issued an Executive Order for the removal of VAT from all forms of transportation, but before now it is only domestic airlines among different modes of transportation that paid VAT.

VAT is the deduction of 5 per cent from the passenger’s airfare remitted to the Federal Inland Revenue Service (FIRS), while the airlines also pay 5 per cent charge to the Nigerian Civil Aviation Authority (to be shared by four other agencies in the aviation industry).

The CEO of Aero Contractors, Captain Ado Sanusi said the waiver would bring down air fares and make more people to travel by air and increase airlines’ profit margin.

Sanusi said one of the major reasons why airlines fail in Nigeria was lack of financial liquidity, noting that the charges and taxes squeeze airlines to the extent that they generate revenue without profits, so with the waiver, Nigerian airlines would save the 5 per cent fund, which is huge amount of money when put together.

The Chief Operating Officer of Dana Air, Obi Mbanuzuo said the waiver would reduce the financial burden on the airlines, which would improve their operations, make more funds available for aircraft maintenance, leasing and also enhance spare parts acquisition, noting that these are inevitable expenses, which airlines squeeze out funds to attend to after the payment of taxes and charges.

The Chairman and CEO of Air Peace, Allen Onyema said the money saved from the exemption of VAT would be used by airlines to maintain their fleet, acquire more aircraft and also create jobs, adding that payment of VAT eroded the revenue of airlines and might have contributed to the collapse of many of them in the past.

“The exemption of VAT payment for airlines will save thousands of jobs. Aviation is capital intensive with very meagre return on investment but it creates jobs. Airlines will recoup money for proper maintenance of their fleet, and increase their capacity and acquisition of more aircraft. President Buhari loves indigenous companies.

“Every year Nigerian airlines pay several billions of naira as VAT. Nobody listens to airlines all these years until now. But this is a listening President. My colleagues and I are highly encouraged by this decision,” Onyema said.