50% hike in VAT may push up air fares

There is anxiety among airline operators in the country following the increase in value added tax (VAT) from five per cent to 7.5 per cent by the federal government.

The increase, according to the Federal Executive Council (FEC) approval, would take effect after the amendment of the VAT Act by the National Assembly.

But this is coming more than one year after the government granted waiver on VAT remittance to the airline operators, Daily Trust reports.

Our correspondent reports that the airline operators and the FG have been at loggerheads over VAT remittance.

On May 31, 2018, airline owners under the aegis of Airline Operators of Nigeria (AON) rose from a meeting and decided that they would stop remittance of VAT to the Federal Inland Revenue Service (FIRS) with effect from June 14, 2018. They lamented that aviation is the only means of transportation being burdened by VAT remittance in the country.

But one week after, an Executive Order for the removal of Value Added Tax (VAT) from “All Forms of Shared Transportation” was issued by President Muhammadu Buhari.

Then minister of Finance, Kemi Adeosun said: “Majority of the provisions approved today are actually removing the tax burden and clarifying obsolete and ambiguous areas of tax. So for example for VAT there is to be an exemption for residential property, leases on rental, transport for the general public and life insurance.”

AON swiftly commended the president for issuing the order which, it said, also exempted airlines from VAT remittance.

But one year after, airline operators confirmed that they still paid VAT despite though government listed the removal of VAT for them as one of its achievements in the aviation sector.

Minister of Aviation Senator Hadi Sirika in May this year said the ministry was liaising with relevant MDAs to ensure the smooth implementation of the Presidential Order.

It was learnt that AON also raised the issue two weeks ago when it met with the minister in Abuja but there was still no certainty on the implementation date.

With the impending rise in VAT, operators said the implication is that passengers would have to pay more to buy the already exorbitant tickets.

“As I am talking to you, I can confirm that the VAT removal has not been implemented. We are still being disturbed by the FIRS to remit VAT and this explains why the air fare is a bit high,” an operator who spoke with our correspondent in confidence said.

Capt. Alex Nwuba, an airline operator, said the implication of the rise in VAT is higher fares, adding that could worsen the low supply in the sector.

“We already have reduced capacity; demand is high with low supply. We are heading to the Christmas season when fares normally go up and airlines must pass costs to the consumers. It is not only the increase that’s cost but the additional cost of collecting and disbursing it...So expect higher fares,” he said.

Daily Trust reports that the Nigeria Civil Aviation Authority (NCAA) has liberalized air fares, implying that ticket prices are determined by market forces. Experts however say if the government goes ahead to implement the VAT increase, and the waiver for the airline is not effected; operators would have to adjust fares to recover cost.