VAT Increase May Raise Vehicle Prices, Airfares
There are indications that the increase in the rate of the Value Added Tax as spelt out in the Finance Law will lead to a hike in airfares as well as prices of new and used vehicles.
A new VAT rate of 7.5 per cent has become effective with the signing of the Finance Act by President Muhammadu Buhari on Monday. It was raised by 2.5 per cent from five per cent previously charged.
Experts and operators in the aviation and automobile sectors said air travellers and buyers of vehicles should be prepared to pay more for airfares and automobiles respectively.
They, however, expressed optimism that new entrants would be attracted into the auto business and support aviation services.
The Managing Partner, Aglow Aviation Support Services, Mr Tayo Ojuri, said the increase in VAT would impact airfares.
The Federal Government had ordered the removal of VAT from airline taxes as the only multimodal transport system paying it but it has not been implemented more than one year after.
Ojuri explained that even if airlines decided not to increase prices of flight tickets, there would be pressure from other support services to be affected by the VAT increase.
He said, “Prices will be impacted because we are looking at 7.5 per cent of base fare. Even if it is five per cent, it will still have impact.
“Aviation has a value chain that will pass costs to the airlines. The service providers will pass on the charge to the airlines and the airlines will pass it on to the passengers.”
According to him, airlines deal with a lot of costs, adding, “It is a fact that aviation fuel takes 40 per cent of their overhead; so, if we are adding 2.5 per cent VAT to the existing five per cent, it will definitely make a difference.”
Ojuri, however, noted that passenger traffic might not be affected as most Nigerians still considered air travel as elitist, and they travelled mostly for business or life-changing events such as wedding.
The Deputy Managing Director, CFAO Motors, Kunle Jaiyesimi, said auto assemblers and vehicle dealers could not absorb the increase in the VAT rate would have to pass it on to the customers.
“Prices of vehicles have to go up. Already we have about 250 units (vehicles) at the port awaiting clearance. We just hope the Customs platform has not been changed because we had orders for those vehicles, when prices were fixed at five per cent VAT rate.”
The Executive Director of the Nigerian Automotive Manufacturers Association, Remi Olaofe, said the finance law would encourage “new entrants into the auto business and ensure government’s support for small-scale businesses to grow.”
A transport consultant and lecturer at the Covenant University Ota, Dr Oscar Odiboh, also said the new VAT rate would boost government’s revenue and, “as the biggest buyer of automobiles, it can buy more and put more money in the system for people to buy vehicles.”