• Monday, May 27, 2024
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BusinessDay

Explainer: How taxes, charges fuel skyrocketing air tickets

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By standard rules of international taxation, airlines like every other business are subject to corporate taxes on their earnings.

However, the multiple taxes slapped on businesses in Nigeria have become a “burden” according to the airlines. They pass on the extra cost of doing business in the country to their passengers in the form of exorbitant airfares.

Besides the challenges of single ownership, poor governance, inadequate expertise, and unsuitable aircraft, domestic airlines in Nigeria also suffer from the negative effects of unilaterally imposed taxes, fees, and charges, further impacting their viability.

Even worse, is the focus on increased revenue generation by government agencies in the sector, without commensurate value and completely at variance with their establishment objective of being not-for-profit.

BuisnessDay’s checks show that every domestic airline company in the country is exposed to a total of 13.5 per cent in taxes including five per cent ticket (charter/cargo) sales charge, 7.5 cent Value Added Tax (VAT), one per cent development tax, even before the applicable corporate taxes, PAYE, pension scheme, etc.

Meanwhile, every single flight is in turn exposed to other fees such as flight clearance, navigation, parking or landing, etc. Other personnel and equipment-specific charges such as licensing, training, aircraft certifications, insurance, etc., are also applicable.

These airlines still have to deal with operational expenses including fuel, maintenance and depreciation, amongst others.

When all these are aggregated, airlines end up with taxes at about 32.7 per cent of domestic airlines’ gross revenues.

The world average of airline profitability is between 1.5 – 2.5 per cent for major carriers with size and scope. Boeing determines that the effects of size and scope kick into an airline’s operations when it operates a single fleet of a minimum of 50 aircraft.

Roland Iyayi, former managing director of the Nigerian Airspace Management Agency and president/CEO, of Top Brass Aviation Limited, said when arguments are proffered to justify some of the obnoxious policies and tax regimes, it is often said for instance, that the five per cent ticket sales charge (TSC) is paid by the passengers.

“Who provides the capacity for the passengers? Government or private airlines? Whose loss is it when seats are flown empty, considering that these are perishable? Is demand suppressed by an increase in ticket price or not? Why are ticket prices not unbundled in this country? So many questions, yet no answers !!

“Having successfully decimated the growth potentials of fixed wing airline operations in the country, the focus has now shifted to the rotary wing aircraft for the final stage to be set for the demise of the domestic industry,” Iyayi said.

He said Festus Keyamo, minister of aviation and aerospace development, sent out a letter to helicopter operators in the country, mandating that they henceforth pay ‘Landing Levy’ to the coffers of a private company with no infrastructure for such, but to increase revenue generation.

“The past administration told the industry that it has installed the multilateration surveillance systems in the Niger Delta under the purview of NAMA for the purpose. What has happened?

“What is the landing levy for and does it replace the industry standard landing fee? What services are being provided currently and not paid for by helicopters?

“For the avoidance of doubt and contrary to the minister’s assertion on national TV, helicopter operations are fully regulated in Nigeria; from licensing to helideck approvals to flight plans and landing fees. This Landing Levy is an arbitrary charge that is not doused in reality and has a chance of crippling the whole industry if not completely cancelled.

He said for instance, Escravos is the operational base for Chevron and it hosts a few of their contracted helicopters.

“The single Bell 407 or light twin Bell 427 helicopter does an average of 70 landings per day. At $300 per landing, it comes to $21,000 per aircraft per day. There are usually 4-6 contracted aircraft at any time. So, if we assume five helicopters as an average, that would amount to a total of about $105,000 per day for the five aircraft. If we then assume a 25-day month, that would amount to a gross earning of $2,625,000.00 as a Landing Levy per month, only for the Chevron Escravos operations.

“Meanwhile, Chevron structures its contracts with operators along the lines of a Monthly Standing Charge (MSC), paid to the operator monthly in arrears even when no flights are conducted, and an Hourly Charge (HC) for when actual flights are conducted.

“The contract cost to Chevron for those five helicopters is approximately $1.75m per month. So, in essence, the proposed Landing Levy costs more than the service that supposedly generates the charges. How does this make any sense?

“Additionally, the manned helidecks and landing sites in the country are licensed by the Nigeria Civil Aviation Authority, (NCAA), with annual fees ranging in the millions of Naira paid each year to the NCAA to maintain certification.

“The Helideck/radio/firefighting crews for the helideck are also certified with different fees payable to the NCAA. How do you then charge for operating to a location you have licensed and bare no cost of maintaining?”

He said each landing at those locations is paid as per flight plan charges to the Nigerian Airspace Management Agency (NAMA), adding that from the foregoing, it is evident that the intention is to bleed domestic airlines and helicopter operators to oblivion.

Obiukwu Mbanuzuo, former chief commercial officer at Green Africa, gives a further breakdown of the taxes and surcharges.

According to him, on a one-way ticket sold by airlines, they pay a certain percentage to the Federal Airports Authority of Nigeria (FAAN) as a passenger service charge, and five per cent to the Nigeria Civil Aviation Authority, (NCAA).

From whatever is left, the airline also pays N2.50 for each litre of fuel to FAAN (via the marketer) and landing fees, which depend on the aircraft’s landing weight, he explained.

“Basically, FAAN collects a ‘throughput’ charge on each litre of Jet A1 sold to airlines. I understand that this was historically due to the underground fuel hydrants that supply international airports but those no longer work. Anyway, whatever price of Jet A1 is, the marketer adds N2.50 per litre that the airline pays and this is paid to FAAN,” Mbanuzuo said.

He said on every flight, airlines pay between N20,000 to N25,000 per ticket to Nigeria Airspace Management Agency (NAMA) as terminal navigation charges and en route navigation charges and this excludes other charges to airports for space rental at the check-in counters, to handlers (NAHCO/SAHCO).