Will New Nigerian Aviation Tax Reforms Ground Airlines Despite Government's Promise?

The Nigerian aviation tax regime is facing a major conflict. The Presidential Fiscal Policy and Tax Reforms Committee (PFPTC) claims new laws will bring relief. However, the Airline Operators of Nigeria (AON) insist the reforms will actually hurt domestic air travel profitability.

Government's Proposed Relief

The PFPTC argues its reforms address structural issues. The committee highlighted the removal of the 10% withholding tax on aircraft leases. This tax was a major financial burden on airlines. On a typical $50 million lease, the tax amounted to $5 million, which was non-recoverable.

This 10% rate is now replaced by a rate to be set by regulation. This change creates room for a full exemption or a much lower charge. The PFPTC also promised “full VAT neutrality” for airlines. This means airlines can recover input Value Added Tax (VAT) on imported assets and services. This ability to claim input VAT is intended to reduce hidden operating costs. The reforms are scheduled to take effect from January 2026.

Airline Operators Insist on Collapse

Despite the government’s assurances, the Airline Operators of Nigeria maintain that the existing tax burden is already unsustainable. AON members argue the new regime will exacerbate their financial woes. They point to the reintroduction of a 7.5% VAT on tickets, aircraft, and spare parts. This reverses temporary concessions granted during the COVID-19 pandemic.

Air Peace CEO Allen Onyema warned that the cumulative effect of the new taxes could force domestic carriers to ground operations within months. He claimed that the financial strain could push some domestic economy airfares as high as N1.7 million. The PFPTC, however, countered that this projected increase is exaggerated.

Conflict Over Multiple Charges

A key point of contention is the continued existence of numerous levies. AON states that airlines pay up to 17 different taxes and charges. Industry stakeholders argue these are not true charges but taxes, as the revenue is not used for aviation infrastructure.

• NCAA Ticket Sales Charge: The Nigerian Civil Aviation Authority (NCAA) collects a mandatory 5% charge on every ticket's base fare. This rate is significantly higher than the 2.5% maximum tax rate reportedly paid by airlines globally.
• FAAN Fuel Surcharge: The Federal Airports Authority of Nigeria (FAAN) charges domestic airlines N2.50k per liter of aviation fuel. This is an additional financial burden on operators.

These levies, according to AON, violate the International Civil Aviation Organization (ICAO) cost recovery principle. ICAO defines a charge as a levy specifically designed to recover the cost of providing services. Taxes, conversely, are for general government revenue.

Industry Impact and Outlook

The domestic airline sector operates on thin margins and faces high operating costs. The AON argues that the compounding effect of these taxes suppresses passenger demand. This is because increased taxes lead to higher ticket prices, making air travel unaffordable for many. The ongoing dispute highlights the deep-seated financial challenges facing Nigerian carriers, which struggle with foreign exchange volatility and regulatory fees. For more commercial aviation news and analysis on this developing story, visit flying.flights. The government and Airline Operators of Nigeria continue to engage in consultations to find a path forward.