New Nigerian Aviation Taxes Risk Stifling Sector Growth and Competitiveness

Nigeria’s aviation sector is facing significant economic headwinds as a challenging fiscal policy environment threatens to stifle growth and undermine its role as an economic enabler. While comparable African aviation markets are experiencing robust growth, Nigeria’s domestic passenger traffic has declined, raising concerns about the long-term viability of its airlines and the country's competitiveness as a continental hub. The core of the issue lies in a policy decision to prioritize immediate tax revenue over fostering sector growth, a move that industry experts warn could have far-reaching negative consequences.

Recent data highlights a worrying trend. Between 2022 and 2024, Nigeria’s domestic passenger traffic saw a decline of approximately 3%, a stark contrast to markets like Egypt, Kenya, and South Africa, which recorded growth between 10% and 15%. This contraction is not due to a lack of demand in a nation of over 200 million people with significant travel needs. Instead, it points to an operating environment burdened by escalating costs, a situation exacerbated by recent government fiscal measures.

A Challenging Regulatory and Fiscal Landscape

The financial pressure on Nigerian carriers has intensified following several key regulatory changes. Effective January 1, 2026, the Federal Government of Nigeria, through the Federal Inland Revenue Service (FIRS), rescinded critical Value Added Tax (VAT) and customs duty exemptions for commercial aircraft, engines, and spare parts. This policy reversal adds a significant cost layer to an industry already grappling with what some analyses describe as over 54 different taxes, fees, and charges.

Adding to the burden, the Nigerian Civil Aviation Authority (NCAA) introduced a new $11.50 Advance Passenger Information System (APIS) levy on all international tickets, effective December 1, 2025. These measures, while intended to boost government revenue, contribute to higher airfares, which inevitably suppress passenger demand. When operating costs climb, airlines are forced to either absorb the losses, which is unsustainable, or pass them on to consumers, risking a further decline in traffic.

Industry bodies have questioned the legality of some of these measures. Dr. Samson Fatokun, Area Manager for the International Air Transport Association (IATA), noted that the reinstatement of VAT on air transport appears to contradict the ECOWAS Supplementary Act, an international agreement Nigeria is party to, which prohibits such taxes on air transport among member states.

Severe Operational and Economic Headwinds

Beyond taxation, Nigerian airlines face a severe structural imbalance. Most of their revenues are earned in the local currency, the naira, while a large portion of their major costs—including aircraft leases, heavy maintenance, insurance, and spare parts—are denominated in U.S. dollars. The persistent scarcity of foreign exchange creates immense operational challenges, often leading to aircraft being grounded (AOG) at overseas maintenance facilities for extended periods. This directly impacts fleet availability, causes schedule disruptions, and erodes passenger confidence.

This difficult environment has consequences that extend beyond the airlines. As foreign and regional carriers with more favorable cost structures expand, they capture an increasing share of the economic value generated by Nigerian passenger demand. This includes jobs, maintenance spending, and crucial foreign exchange flows, which are diverted away from the local economy.

The Wider Economic Equation

The argument against aggressive taxation is rooted in established economic principles. According to analysis from Airports Council International (ACI) World, while global aviation taxes generate approximately $90 billion annually, they are estimated to suppress about $183 billion in wider economic activity. Aviation is a catalyst for tourism, trade, and investment. Data from IATA suggests that a 10% increase in a country's air connectivity can lift its GDP by about 0.5%.

When connectivity declines due to uncompetitive operating costs, the ripple effects are significant. Fewer tickets are sold, less fuel is purchased, and the entire ecosystem of hospitality, logistics, and ground handling contracts. The failure of a single airline can result in the loss of hundreds of direct and indirect jobs, and the specialized aviation capability, once lost, is difficult and expensive to rebuild.

A Path to Sustainable Growth

Industry stakeholders, including Charles Grant, the Chief Financial Officer of Aero Contractors, advocate for a strategic shift. The proposed path forward is not to eliminate taxes but to create a policy framework that enables growth, which in turn expands the tax base. Key recommendations include restoring clarity on tax exemptions for aviation inputs, ensuring consistent enforcement of customs waivers, removing duplicative charges, and establishing a coordinated national strategy focused on long-term aviation growth.

By lowering structural costs, Nigerian airlines could expand their networks, stimulate passenger demand, and become more competitive. This would not only strengthen the airlines but also bolster the wider economy, making Nigeria a more attractive destination for investment and tourism.

Why This Matters

Nigeria stands at a critical juncture. The current fiscal approach risks turning the country's significant market potential into a structural disadvantage for its local carriers. A strategic shift towards treating aviation as critical infrastructure, rather than a luxury revenue source, is essential for unlocking its full economic potential and securing a larger, more stable contribution to public finances in the long term.

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