Explainer: How taxes, surcharges drive up airfares in Nigeria

All over the world, airlines are subject to corporate tax on their earnings by standard rules of international taxation.

However, when taxes become a burden to airlines, they pass them on to the passengers by charging very high fares to cushion the effects on their operations.

Airline operators have said taxes and surcharges they are forced to pay in Nigeria are the highest all over the world. While this may be contestable, BusinessDay investigations show that over 40 percent of airlines’ earnings go to government taxes and surcharges.

It was learnt that on each ticket sold to passengers, airlines are made to pay five percent ticket sales charge, five percent cargo sales charge, five percent value-added tax, passenger service charge, charter sales charge, aircraft inspection fees, simulator inspection fees, landing charges and parking charges.

Other include terminal navigational charge, enroute charge, fuel surcharge, airport space rent, electricity charges, apron pass, ramp access charges, ODC and a newly imposed registration fee, all of which are paid to government agencies.

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

According to him, on a N50,000 one-way ticket sold by airlines, they pay N2,000 to the Federal Airports Authority of Nigeria (FAAN) as passenger service charge, and five percent (N2,500) 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 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).

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He, however, hinted that the more passengers on a flight, the cheaper the ‘per passenger’ charge for those that are paid per flight rather than per head such as landing charge.

According to him, an empty flight has a higher burden of charges while a full one will pay less taxes and charges proportionally.

He said Nigerian airlines pay the highest number of taxes globally.

The Civil Aviation Act of 2006 (Part 18.12.3) requires that the NCAA regulates civil aviation and the charges imposed by civil aviation authorities and/or agencies.

These charges, in consultation with stakeholders, are to be approved and reviewed periodically by both parties.

On the contrary, however, airlines allege that they are saddled with charges without any form of consultation whatsoever.

Another operator, Ibrahim Mshelia, owner of West Link Airlines Nigeria and Mish Aviation Flying School, told BusinessDay that there are so many surcharges that the airlines pay and these surcharges increase the cost of tickets and therefore diminish the ability of the many Nigerians to buy the tickets.

Mshelia said government agencies such as NAMA, FAAN and NCAA must charge because they have to recover the cost of services provided to the airlines.

He, however, hinted that the Nigerian Meteorological Agency provides services to the airlines, states and federal government but is funded by the aviation sector through the airlines.

Mshelia said: “The airlines have to fund about 40,000 staff working in these agencies. Politicians only want to create jobs; they do not want to sack people but what has happened in the aviation sector is a mistake. There is no way 40,000 will be serving the airlines. Even in the NCAA, it is only the inspectors and technical people that work. These people require administrative support.

“The airlines need a few FAAN security agents, a few dispatchers and aircraft marshals. These are the people who deal with the airlines. Airlines only need about 5,000 employers but the remaining 35,000 are just drawing from the airlines.”