Domestic Airlines May Raise Fares Following VAT Increase
There are indications that domestic airlines may raise airfares following the increase in Value Added Tax from five per cent to 7.5 per cent by the Federal Government.
Our correspondent gathered that airline operators are considering the increase in ticket prices as the last option if dialogue with the Federal Government to remove VAT from airline taxes failed to yield result.
As of Tuesday, prices were yet to change but sources said that new fares could be announced soon.
An industry source told The Economic Confidential that operators were pushing for the removal of VAT as promised by the Federal Government in 2018 but there had been no positive response from the Federal Inland Revenue Service before the recent increase.
“We are still engaging with the government; airlines have been pushing for the removal of VAT from charges before the Federal Government suddenly increased the rate. So, what the government is saying is that we should increase fares,” an industry source said.
“We are still appealing to see what can be done but fare increase may be the option after exhausting all other options. The VAT removal of 2018 was never implemented,” the source added.
The Federal Government had in 2018 announced the decision to remove VAT from domestic air operation in line with global best practices and to make air travel more affordable and subsequently lead to the creation of jobs by the air transport service value chain.
But almost two years after the pronouncement, nothing has been done.
A few weeks ago, the Federal Government signed the Finance Law, raising VAT from five per cent to 7.5 per cent and the implementation began on February 1.
According to analysts, this will further compound the problem of multiple taxes reportedly being faced by airlines.
Airline operators said they had been having back and forth discussions with the FIRS as the agency had insisted that the Federal Government only made a pronouncement which could not be implemented without a gazette.
The Airline Operators of Nigeria, the umbrella body for airlines in the country, had estimated that its members were paying over N10bn as taxes annually.
The Chairman of AON, Capt. Nogie Meggison, had recently stated the situation was threatening airline operations.
Before the Executive Order, the AON had threatened that its members would no longer pay VAT with effect from June 14, 2018, saying that the remittance was unfair, as only domestic airlines were made to pay, while foreign airlines and other modes of transportation were exempted.
The AON had lamented that the payment of VAT had resulted in airlines not being able to optimally utilise their aircraft assets.
The Secretary General, Aircraft Operators Association of Nigeria, Capt. Mohammed Joji, said operators planned to meet over the issue with a view to taking a decision on it.
He said, “Air travel does not carry VAT; foreign airlines don’t pay such taxes. Why should domestic airlines pay?
“We have been fighting to get this removed since 1993; that is a long time now. Road, rail and sea transport operators do not pay VAT. So, why domestic airlines? That is our argument and we are planning to engage the government on this.”
The Managing Partner, Aglow Aviation Support Services, Mr Tayo Ojuri, said the increase in VAT would affect airfare.
According to him, even if airlines decide not to increase prices of tickets, the pressure from other support services that will be affected by the increase will impact on them and the liabilities will be shared with passengers.
He said, “Prices will be impacted because we are looking at 7.5 per cent of base fare, even if it is 0.5 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 airline and the airlines will pass it to the passengers. Airlines deal with a lot of costs. It is a fact that aviation fuel takes 40 per cent of their overhead.”
Ojuri said the additional 2.5 per cent on the existing five per cent VAT would definitely make a difference in airlines’ operations.