Nigeria’s new tax laws are designed to ease long-standing cost pressures on airline operators and prevent sharp increases in air fares, the Presidential Fiscal Policy and Tax Reforms Committee has said, countering claims that the reforms will worsen conditions in the aviation sector.
The committee said this in a statement published by its Chairman, Taiwo Oyedele, via his X account on Monday.
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The committee said the reforms address structural tax problems that have for years raised operating costs for airlines, weakened cash flow and, ultimately, been passed on to passengers through higher ticket prices.
Nigeria’s aviation industry has struggled with thin margins, high foreign exchange exposure and multiple taxes and levies imposed by different government agencies.
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Airline operators have repeatedly warned that these costs, rather than fuel prices alone, are a major driver of expensive air travel in the country.
At the centre of the reforms is the removal of the 10 per cent withholding tax previously charged on aircraft leases, which the committee described as the single biggest tax burden on airlines.
Under the old system, airlines leasing aircraft from foreign lessors were required to pay the tax upfront, even though it was not recoverable.
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The new tax law removes the fixed rate and replaces it with a provision allowing the rate to be set by regulation, creating room for either a full exemption or a much lower charge. On a typical aircraft lease valued at $50 million, an airline would previously have paid about $5 million in withholding tax, a cost that directly strained liquidity and increased ticket prices.
The reforms also altered how value-added tax (VAT) is applied to airline operations.
While airlines benefited from a temporary VAT suspension introduced during the COVID-19 pandemic, the committee said the exemption came with hidden costs.
Airlines were unable to recover VAT paid on many inputs, including assets, consumables and overheads, meaning VAT became embedded in operating expenses.
Under the new tax laws, airlines become fully VAT-neutral.
VAT paid on imported or locally procured goods and services can now be reclaimed, while excess input VAT must be refunded within 30 days or offset against other tax liabilities.
The committee said this will reduce cost pressure and improve cash flow across the industry.
“The reform is part of the solution, not the source of the problem,” the committee said.
Existing exemptions on import duties for commercial aircraft, engines and spare parts remain unchanged, according to the committee.
It said there is no new duty burden introduced under the tax reforms, countering concerns raised by some industry stakeholders.
On ticket prices, the committee argued that fears of steep fare increases are overstated.
Although tickets attract a 7.5 per cent VAT, the ability of airlines to fully recover input VAT significantly lowers the net impact.
Even in a worst-case scenario where VAT could not be reclaimed, the committee said the increase would still be limited to the headline rate.
For example, a N125,000 ticket would rise to no more than N134,375, while a N350,000 ticket would increase to about N376,250.
It said the reforms also provide a pathway to reduce corporate income tax from 30 per cent to 25 per cent, a move expected to benefit airlines already struggling with high operating costs.
READ ALSO: Tax Reforms: Lawmaker alleges discrepancies between gazetted laws and versions passed by NASS
In addition, several profit-based levies that were previously charged separately, including education, technology, and police levies, have been merged into a single development levy, reducing complexity and uncertainty.
Multiple levies imposed by different agencies remain a concern for airlines; however, the committee emphasised that the new tax laws did not introduce these charges.
It said the government is engaging with operators and regulators to address the issue, adding that tax harmonisation provisions in the new laws mean the situation is expected to improve from 2026.
“The new tax laws are not the problem, they are a critical part of the solution,” the committee said.
Overall, Mr Oyedele said the reforms provide a stronger legal and policy framework to reduce airline costs, improve liquidity and protect passengers from excessive fare increases, provided engagement with industry stakeholders continues and non-tax issues are resolved.
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