Nigeria Tax Reform: Will Removing Aircraft Lease Tax Save Airlines Millions?

Nigeria’s Presidential Fiscal Policy and Tax Reforms Committee has introduced new tax laws. These reforms aim to address long-standing cost pressures in the nation's aviation sector. The committee, led by Chairman Taiwo Oyedele, stated the changes are designed to stabilize and strengthen the industry.

Airline operators have long struggled with high operating costs. These costs are often driven by multiple taxes and high foreign exchange exposure. The new framework is intended to be a solution, not a source of new problems.

Key Structural Tax Reliefs

Withholding Tax on Aircraft Leases

One major structural relief is the removal of the 10% withholding tax (WHT) on aircraft leases. The committee identified this WHT as the single biggest tax burden for airlines. Under the previous system, this non-recoverable tax significantly strained cash flow. For example, an airline leasing a $50 million aircraft paid about $5 million in WHT upfront. The new law replaces the fixed rate with a provision to be set by regulation. This change creates the legal basis for either a full exemption or a substantially lower charge.

Value-Added Tax (VAT) Neutrality

The reforms also make airlines fully VAT-neutral under the new laws. This means Value-Added Tax paid on imported or locally sourced assets can now be claimed. Previously, a temporary VAT suspension created hidden costs. Airlines could not recover input VAT on many purchases, embedding the tax in their operating expenses. The new regime improves liquidity by allowing for full input VAT recovery. Furthermore, the law mandates a VAT refund within 30 days for excess input VAT. This refund is supported by a funded account or can be offset against other tax liabilities.

Broader Fiscal and Import Changes

The committee clarified that existing exemptions on commercial aircraft, engines, and spare parts remain intact. No new import duties have been introduced under the tax reforms. This directly counters concerns raised by some industry stakeholders, including Air Peace CEO Allen Onyema.

• Corporate Income Tax (CIT): The new law provides a framework to reduce the CIT rate. This reduction is from 30% to 25%, benefiting capital-intensive sectors.
• Levy Harmonization: Several profit-based levies have been combined. They are now a single Development Levy, simplifying compliance.

Industry Impact and Outlook

The Nigeria Civil Aviation Authority (NCAA) and the committee have dismissed claims of drastic fare increases. They argue that the ability to recover input VAT will significantly lower the net impact on ticket prices. The committee noted that airline operations are inherently low-margin. Addressing the issue of multiple levies, the committee acknowledged their existence. However, they clarified these were not introduced by the new tax laws. Engagement with relevant agencies is ongoing to address these non-tax charges. The reforms, scheduled to take effect from January 1, 2026, are expected to improve the sector’s condition over time. This is a crucial development for Nigerian airlines as they seek to improve financial stability and reduce reliance on foreign leasing. Stay updated on commercial aviation news at flying.flights. The new tax framework offers a pathway to a more sustainable operating environment for carriers like Air Peace and other domestic operators. The removal of the 10% WHT on aircraft leases is seen as a major boost for the industry’s liquidity, a key factor in securing future fleet expansion.